10. Gold and a Return to the Ideas of John Law

(Communication to the Academy of Political and Moral Sciences, April 24, 1950)

My dear fellow members, do not worry. The gold I want to talk to you about is not the gold whose hoarding was denounced, long before Lord Keynes and John Law, by our delightful La Fontaine and our stern and honest Labruyère. Like everyone else, I realize that neither gold nor greatness can make us happy. Like all my generation, I have listened to Richard Wagner proclaim in resounding music that gold should be buried in the Rhine in order that peace shall be restored to men. But I have also listened with no less attention to the words of his great adversary Nietzsche who, in his Zarathustra

asks himself “How did gold acquire its high value?” His reply deserves reflection. “The value of gold comes from its being rare and useless and its sparkle brilliant and soft! Gold is offered as a gift.” And he continues: “It is like a symbol of the highest virtue that gold has acquired its high value. The highest virtue is rare and useless; its lustre is brilliant and the highest virtue is a virtue which gives itself.”

The gold that I want to talk about is not gold as a symbol or instrument of accumulation of wealth. The gold that interests the economist is the gold used as an instrument of payment within each nation and between one nation and another. You will agree, I hope, from the start, that in a world entirely based on trade, a common instrument of payment is of prime importance. We are witnessing today a great and historical phenomenon, the recreation of a common instrument of payment between nations. Like every creation, it meets with resistance and incomprehension. Whence the strange contradictions in the actual policies of all governments in regard to gold, contradictions about which I would like to speak for a moment.

During the war, all the belligerents forbade the exportation of gold, and many, France in particular, reserved for themselves its exclusive possession. What did that policy mean? Evidently a desire to conserve for the country the largest possible amount of gold. It was the obvious recognition of the importance of the yellow metal for the economy of each country The Germans, without doubt, proclaimed everywhere the end of the role of gold. It was one of the dogmas of Nazi economic policy. But, wherever they could put their hands on gold, in private safes, in occupied territories, or worse, even in the dentures of those deported, they hastened to seize it. Gold held a place of honor. Since the war the attitude of governments toward gold has become less simple. In principle, their preoccupation seems to be, just as during the war, to prevent individuals from buying the yellow metal, from trafficking freely with it, from exporting it. And yet, this attitude is not general. In France, after a period of interdiction it was decided two years ago to allow the free market in gold. At the same time, by a curious anomaly, its importation without authorization is forbidden, a fact which seems to indicate a certain fear that the gold stocks will increase while, apparently, the government desires precisely such an increase. From time to time, the papers announce with great noise the arrest of persons criminal enough to have brought in fraudulently ten millions francs worth of the gold metal. Ten million francs, that is to say scarcely a hundred thousand francs at the rate prior to 1914, the happy time when each entry of gold into France was welcomed officiously as well as officially, by cries of delight. The importers of gold today are treated more like traders in cocaine!

Another contradiction. There exists in France one private entity, and one alone, which does not have the right to buy gold on the market called free and as such open to everyone. This entity is none other than the Bank of France, that is to say, the only entity one would wish to see acquire the largest amount possible, in the general interest. But the International Monetary Fund, although entrusted by its statutes with the restoration of monetary stability in the world, by bringing us back to the gold standard—but which seems to have toward the very name of this metal a kind of physical dread—would frown severely if the Bank of France should venture into this immoral enterprise. Understand who may!

The same bad logic is manifest elsewhere. In the United States, for example, since 1933, private individuals no longer have the right to own gold pieces. However, they are allowed to possess gold nuggets, and a small free market even exists for nonmonetary gold. Importation is equally free. The government pays thirty-five dollars in paper per ounce of gold which the producers offer. This is the price which was fixed in 1933, when the devaluation of the dollar by President Roosevelt took place. It means that a paper dollar is equivalent to 1/35 of an ounce of gold. But at the same time, and by a strange scruple, the Federal government, which doesn’t fear the inflation resulting from a budgetary unbalance, seems to fear the increase in the circulation of bank notes resulting from the purchases of gold. It instructs the Federal Reserve Bank to sell its bonds to the public for an amount equal in dollars to the amount which it has issued in exchange for the gold. Thus it reduces the circulation of paper money by an amount equal to its increase by what is called “the purchase of gold,” a term which is singularly misleading. It is willing to acquire the gold, but on condition that the operation be deprived of its normal effect, which is the increase of the monetary means, an increase which, as everyone knows, is no longer obtained by the minting of the metal into coins, but by putting into circulation by the Central Banks an amount of paper money corresponding to the amount of gold received.

In Switzerland, a country which is always legally on the gold standard, the purchase, the sale, the exportation, as well as the importation of gold, are submitted to governmental regulations which are very liberal, for here it is the plethora of gold which preoccupies the monetary authorities, and it is the means of disposing of it that are being sought.

But the most striking paradox is that offered by the Transvaal. The Transvaal is a great producer of gold. This small country, like all the others, has been subject to an increase of costs on a world scale, particularly an increase in wages. The expenses of exploiting the mines have thus been increased, while the price which they receive when they send their gold to the United States remains always the same. The result is a restriction in the production of gold, at a time when that production would be most needed by the world. Therefore, it has been forced to plead with the International Monetary Fund for the right to sell gold in an industrial form, in the free markets. Not without difficulty has the Transvaal obtained this right for a part of its production. One sees today nuggets, coarsely shaped, sold on the free markets, at the price of these markets and, as soon as sold being changed into gold pieces or ingots easy to hoard.

Let us note that all these regulations have not prevented the creation of free gold markets everywhere. In a remarkable article that appeared in the Revue d’économie politique, M. Herbette has given a detailed description of this. The article shows once more this opposition, so often noticed, between the reality of economic life and the economic legislation which pretends to govern it, an opposition which makes up the thread of a good deal of economic history. At all times this history has followed a road quite different from that which the legislator believed he could map out for it, and always it is the legislator who had to yield ultimately.

From these wavering and contradictory policies we receive a common impression, which is that there exists on the part of governments an immense distrust of gold and its free use.

How can one explain this state of mind?

Reasoning by a logic that is a bit oversimple, and therefore always dangerous when we deal with social phenomena, the issue should be stated, it seems, in the following way: Either gold is considered by governments as merchandise, with all the qualities which distinguish it as such—beauty, scarcity, ornamental possibilities—or it is considered as currency, a currency, let us explain, that is not only national but international, sought and demanded for payments both within a state as well as between one state and another.

If gold is simply merchandise, there should be no hesitation. It is a luxury merchandise whose importation in a period of scarcity should not be tolerated at any price. It is inadmissible that we should import diamonds, gold, or pearls, when we lack wheat, coal, or copper. Countries should sternly forbid the importation of gold, like that of rare furniture or valuable paintings. Aside from some special cases of industrial use, the importation of gold ought not to be tolerated neither for individuals nor for the government.

In the second case, if gold is an instrument of payment, the governments should, on the contrary, facilitate by all means the importation of it from abroad, for themselves as well as for private individuals. The world aspires toward a stable currency. A stable currency is as indispensable to economic life as the merchandises themselves whose trade it facilitates. And if one may find partially substitutes for it in payments within the country, there exist none for payments outside the country. In fact, governments have not thought it necessary to choose between these two alternatives, and for the simple reason, which is that this dilemma has no relation with reality. Gold, actually, is at the same time a merchandise and a currency, even when it is not minted in the form of coins. It is the merchandise-money par excellence. It is money, and above all international money, because it is a merchandise. In international trade, a country accepts in payments only merchandise, that is, objects having an international demand and an international market. Among these objects, gold is particularly welcomed, by reason of its quality as a metal and because of its high commercial value in small volume.

That is precisely why the United States persists in “buying it,” while refusing the same right to private individuals. They call it useless merchandise when private individuals demand it. They declare it international currency when they acquire it.

But why refuse to private individuals the use of this money? Here it is no longer logic but psychology that comes into play.

The governments had a bad conscience, and a bad conscience always leads to absurdities, as well as to error. Why do governments have a bad conscience?

Because all during the war they have created paper money, assuring the public that the new pounds, the new dollars, the new francs, the new marks, were worth as much as the old ones. When the war was over, this fiction had to be maintained, and as the natural effect of a superabundance of money is to provoke a rise in prices, all possible measures were taken to prevent this rise in prices—without success, however. For how could one maintain the same purchasing power for the dollar in relation to merchandise, when there were on an average four times more dollars in the pockets of private individuals? How maintain the same value for the pound when there were four or five times more pounds? How maintain the same purchasing power for the franc when there were in relation to 1939, ten times more at the time of the Liberation, and twenty times more today? It is as if one were to double or triple the quantity of carrots on the market and declare that their price will remain the same, and that one will continue to exchange the same weight in carrots for the same quantity of their goods as before.

In the middle of this brilliant international effort, someone came to trouble the feast. This someone was no other than gold. Clandestinely at first, openly later, gold markets began to open, in France, Italy, Egypt, India, and China. And what did we find then on these markets? The price of gold, expressed in paper money, rose proportionately very close to that of merchandise, and even more. What did it mean if not that gold had maintained in relation to merchandise the same purchasing power as before? The price of potatoes in francs was multiplied by twenty. But at the same time the price of a gold piece, Swiss or French, was multiplied by the same amount or more. To acquire gold coins, therefore, was to be insured against a probable rise in the price of merchandise. From there to desiring the resurrection of gold currency and the death of paper money was but one step. However, against such a sacrilegious desire, the governments had to guard themselves at all costs. Markets in gold were forbidden; forbidden also the free circulation of gold from country to country, and the new organization born of the Conference at Bretton Woods, the International Monetary Fund, extended its excommunication to all free markets in gold.

Here I would like to leave my statement of facts for a moment, to consider one of ideas.

It is rare that an economic practice does not try to build up a doctrine in order to justify itself. The history of currency is acquainted with this phenomenon. All sorts of arguments were readily found to justify the outlawing of gold. These arguments were naturally presented as new. It is somewhat as if an astronomer of today were suddenly to resuscitate the system of Ptolemy. When one deals with positive science, these reversions to the past are quickly condemned by scientific opinion. In social or economic matters, scientific opinion cannot serve as arbiter. All absurdities find believers if they are stated in a language sufficiently pedantic. The ideas that have been revived and that hold sway today in some very serious circles, in Anglo-Saxon countries, are none other than those of a certain personage who is totally forgotten in these countries, but whose name, on the contrary, is about the only name of a financier, after that of Saint Elois, that appears in all the manuals of history: John Law.

There are in the experiences of John Law two entirely distinct phases.

In the first phase, John Law proclaims the convertibility of the bank note into metal. The value of the note, its purchasing power, is not distinguished from that of metallic money.

In the second phase, John Law suspends the convertibility of the bank note in order to issue larger quantities. And immediately, in order to prevent the depreciation of the paper from being apparent in its exchange for the pound-silver, he forbids the possession of gold and silver by the public, exactly as was done by President Roosevelt in 1933. Law orders searches in homes, he encourages denunciations. Silver deposited with notaries and in saving banks is seized and replaced by paper money. Jewelers may not sell any item exceeding one ounce, or any table silver. “The state,” writes Saint-Simon, “undertook the remarkable feat of persuading Frenchmen that, since the time of Abraham, who had paid in cash for the burial place of Sarah, the coarsest illusion and error had existed about currency and the metals out of which it is made.” “Many obeyed, but a greater number exported their metal or hid it and the circulation of metal-money decreased in enormous proportions.” (Carré, Histoire de Louis XV).

Justification of these measures is found at length in the letters of John Law, published in the Mercure de France, in 1720, which contain already all the arguments for propaganda that partisans of the paper-money will advance later.

First, the weightiest argument. Money is made to circulate. If one hoards it, the king (today we say the state) has the right to confiscate it:

“And, in truth, the king alone should possess species today, because he is the only debtor in silver, and private individuals owe each other only bank notes. The Bank, in relation to finances, is the heart of the realm, where all the money must return in order to begin again its circulation. Those who wish to amass it or to withhold it are like parts or extremities of the human body that would stop, as it flows, the blood that feeds and restores them. These parts would soon destroy the agent of life in the heart, in all the other parts of the body, and finally in themselves. Money is yours only by the right that you may have recognized by the government certificate to be used to satisfy your needs and your desires. Outside of this right its use belongs to your fellow citizens, and you may not deprive them of it without committing a public injustice and a crime against the state.”

And here is a comparison with the great highways that I heard made a short time ago by an American economist who was totally ignorant of the existence of his great predecessor:

“All the species of the realm belong to the state, represented in France by the King; they belong to him precisely as do all the main roads, not in order that he may enclose them in his private domains, but to prevent that anyone should enclose them in his; and as it is permitted to the king, and to the king alone, to alter the highways for the public convenience, of which he is the sole judge, it is also permitted him to change the species of gold and silver into other means of exchange which may be more advantageous to the public and which he accepts himself, as he accepted the others.”

Note, in passing, the absurdity of this reasoning. The highways are established at the state’s expense and belong to it. Gold currency is acquired by an individual in exchange for goods which he has provided. The state may well requisition the gold coins, as it does wheat or horses, but only under exceptional circumstances and against indemnity.

In reality, what Law intends to condemn is hoarding, still the nightmare today of the partisans of paper money, for whom money is made only to circulate and not to serve as a store of value.

Actually, in normal periods, when distrust of money does not exist, hoarding does not occur. Money is held just the time necessary between the moment when it is received and when it is again spent. This interval may be more or less long. It suffices that it should be slightly increased in order that the holding of currency be qualified monetary hoarding. So, in periods when money ceases to be convertible, one of its essential roles, that of being a bridge between the present and the future (a definition on which Simiand and Lord Keynes are agreed and which I have often employed myself) is threatened. And immediately the precious metal comes to fill this role, precisely because of the stability of its value and its physical inalterability. In other words, the precious metals are in demand not only as currency, when gold-currency is available, but also as an instrument of store of value, either in coin form or in the form of ingots, during periods of mistrust in national currencies. In this case, it is the metal itself which is in demand, and if coins are hoarded it is only because they constitute the form in which the metal is more accessible to the public. The hoarding of gold is the natural and legitimate reaction of individuals to the decrease in the value of paper money.

This is true today, as it was during Law’s time.

Another of Law’s arguments: Gold is not real wealth; it has but a representative value. Only consumable goods are real wealth.

“The only real wealth among men is foodstuffs and merchandise, and the only real commerce between them is the bartering of these articles of food or this merchandise. Gold, silver, copper, bank notes, shells, marked and threaded, used on certain coasts of Africa, these are but representative forms of wealth or the signs of transfer of the real wealth.”

Excuse me for pausing an instant on this argument, because it is often repeated, although the great Turgot has protested against this idea. Very recently still another American observer, having seen for himself the disasters caused by the fluctuations of the paper drachma in Greece, proposed to the American monetary authorities that they send gold into Greece in order to stabilize the currency. The official reply was that the American government was ready to send foodstuffs, machines and raw materials, but not a useless ware such as gold. This reply reveals a state of mind which the great inventor Edison expressed in a witty way: “Of what use is gold but to fill teeth and gild frames?” What Edison did not perceive is that in an economic system built upon the division of labor and on trade, gold is useful and even indispensable as an instrument of payment, for an instrument of payment does not fulfill its role if it does not have a stable value. And no other metal has such a stable value, because being rare and desired, it is universally in demand. Gold does not have a representative value; it has a value all its own. It is the demand that confers value to objects. One might as well say that alcohol serves only to poison generations present or future, or that tobacco only clouds the brain and makes the air foul in your apartments! Or that diamonds serve only to adorn the crowns of kings, or to be exposed in a window to the eyes of passers-by. And yet, alcohol, tobacco, and diamonds have a value. Gold also is in demand, because it is an admirable agent of preservation of value in time, and traders really need such an agent. In fact, exclaim the enemies of gold, if gold is in demand because it serves as an instrument of payment, that is proof that its value is artificial, and it could be replaced by another instrument of payment on which one could confer this same artificial value. There, again, Law had foreseen the argument.

In his Considerations sur le Numéraire (p. 515), he said: “Let us suppose silver ceases to be employed as money in Scotland, the quantity of silver would remain the same and the demand much less: as a result silver may fall by two-thirds or more. . . . If England adopted another kind of money, this decrease in demand, together with the ordinary drop caused by the great quantity imported in Europe, would cause an extra drop of as much as 10 per cent.”

This observation is partially true, and was confirmed when monometallism, gold, replaced bi-metallism. But it is true only on one condition, which is that the “other kind of money” of which Law speaks be as good or better than silver. It is not the substitution of any kind of money for gold or silver that will produce the effect mentioned by Law—particularly not the substitution of paper money. Experience shows, on the contrary, that every time, without exception, that gold has been substituted by paper money, the gold has been sought, hoarded, and valued above paper money. This is the phenomenon we find taking place at the present time, in a large measure, in the whole world, and even in the United States.

Notwithstanding these experiences, every time that necessity has compelled governments to resort to paper money, one finds theoreticians deprecating the use of gold. After the English crisis of 1931, when the pound collapsed, one of the best-known English experts, Sir Basil Blackett, expressed the hope that German national-socialism, so desirous of ridding itself of what it called the slavery of gold, would help England in its policy of liberation from this same metal! One can say, indeed, that ten years later national-socialism helped the English government singularly in multiplying the paper money! But before the war of 1914, English economists unanimously proclaimed that the universal demand for sterling came from the assurance that one had of its immediate convertibility into gold; and everywhere they attributed the superiority of sterling over the franc to the fact that the latter ran the risk of being exchanged at the Bank of France not against gold, but against silver.

Today similar pronouncements are made by men who are responsible for the monetary policy of the United States. Many among them assure us that gold has value only because it is convertible into dollars at a fixed price. Thus it would be the value of the dollar that would support the value of gold; in the same way after the First World War some English writers contended that the relative stability of the purchasing power of gold in the last quarter of the nineteenth century was due to the maintenance of stability of the pound sterling on the English market. These same persons assert that if gold were demonetized—in other words, if one could not freely convert it into dollars—the value of gold would fall immediately and it would thus be demonstrated that it is the paper money which supports the value of the gold, and not gold that of paper. To this it is easy to reply today that even in the United States the gold in the free markets is at a premium over paper. In reality, gold on the free markets brings more than thirty-five dollars an ounce, which is the official price paid by the American Treasury to the sellers of gold. If gold is at a premium over paper, if an ounce of gold is worth forty to forty-five dollars in the free markets instead of thirty-five, which is the official price, it is obvious that forty-five dollars are worth less than an ounce of gold in the minds of the purchasers, and that gold is worth more than the official price. If gold were to be demonetized at the present time, if America should decide to offer its demonetized stocks of gold on the world market, there might occur momentarily a decline in the price of gold below thirty-five dollars an ounce, but the universal hoarding of gold would rapidly bring the value of gold to a higher rate, while nonconvertibility would rapidly lower the purchasing power of the paper dollar.

In the countries accustomed to the constant convertibility of the bank note, one notices a singular misunderstanding of the intensity of the need felt by peoples shaken by the fluctuations of paper money to find at last a stable medium of exchange that will save them from the perpetual fear of depreciation of the currency. One of my good friends, François Simiand, a remarkable economist, who would certainly be seated among us if death had not taken him from us prematurely, used to say that gold, as well as paper, had only a fiduciary value. This statement has given satisfaction to all the partisans of paper money. And yet is it not clear that all property titles are fiduciary? In other words, they are based on the belief that their sale and purchase prices will remain in the future about the same as they are today? What would become of the value of the wheat-lands if one discovered the means of producing on a few acres all the wheat that France needs? What would become of the value of the coal mines if suddenly oil wells were discovered enabling us to completely substitute oil for coal as an instrument of heating? The public believes that the artificial manufacture of gold is at present impossible. Its faith in the durability of gold as a store of value rests wholly on this conviction. It is, one might say, fiduciary. Unfortunately, everyone knows that the manufacture of paper money is much easier than that of gold, and it makes a great difference in the appreciation of these two money titles, both of which one may call, if you like, fiduciary.

It is amusing to note that at certain times the partisans of paper money have thought not that the value of gold was supported by that of paper, but that, on the contrary, gold was too rare, its value too high, and therefore too much in demand, and that it caused catastrophes like the depression of 1931, which theoreticians attributed to the increase in the value of gold, though it was due entirely to the inevitable large increases in the production of merchandise following the peace. A great cry arose in England protesting against the scarcity of gold. The conclusion, of course, was that one should have recourse to another currency, one that would run no risk of scarcity, and that other currency was paper money.

In all these arguments you will easily recognize the sophistry of John Law, and it was an English author who declared that in England there had always been friends, more or less disguised, of the great Scottish juggler.

There remains a final argument, familiar to all those who prefer paper money to gold. It is the historic argument. Law was not unaware of it. It is based on the observed fact that there has been spontaneously created, in the form of bills of exchange, bank notes, and checks, a paper money which, little by little, has eliminated gold from payments. The definitive substitution of paper money for gold only serves to consolidate, they assure us, an evolution that has long been coming. This argument is stated at length by John Law.

“Ever since there has existed orderly commerce between men, the one who has needed money, or has not found the money he was required to pay, has given a promissory note, which has taken place of that money, and with which the creditor had to be satisfied. It is easy to see that this practice multiplies considerably the species that is needed and that would never suffice without credit.

“The System, in this respect, has done nothing more than make general, beginning with the king, something that nature, so to speak, the local movement, the necessity of things, had introduced among individuals. Therefore, instead of looking upon the System as an intolerable novelty, I am astonished that it has not established itself by itself a long time ago.”

We find this argument advanced also by all the partisans of paper money. It appears in the works of followers of Ernest Solvay, and even, I am sorry to say, in certain contemporary manuals of political economy.

It has no more value than most of the historical extrapolations, of which political economy knows too great a number. Whether dealing with predictions on the growth of population (theory of Malthus), on the inevitability of communism by reason of the class struggle (Marxist theory), on the unavoidable decrease of profit resulting from the increase of capital (theory of the Saint-Simonians and of Keynes), on the necessary reduction of salary to the minimum of subsistence (theory of Ricardo), all these extrapolations have been revealed to be erroneous. This one has still much less value, for the simple reason that the inconvertible paper money has nothing in common (save the external form) with the instruments of credit, all convertible. Paper money is not a bank note carried to its maximum effectiveness. It is something else than a bank note, a money of necessity, as Galliani used to say.

The remarks I have just made bring me to the conclusion that there exists in the entire world an extremely strong desire to find an international currency with a stable value, and that this currency can only be gold.

If every country could isolate itself from the others, live by the products of its soil, find at home all the raw materials required by modern industry, one could very well conceive that any money, even paper money, might serve to effectuate all payments within each country. This is the hypothesis nearly always made by the Utopians. All the socialist and communist systems, that is to say, the systems based on the suppression of trade, all these systems are unconsciously nationalistic. They presume, without saying it and often without realizing it, that a country can be self-sufficient, and that consequently an international money has become unnecessary. In fact, however, the two great world wars, and especially the second, have shown us sufficiently to what a great degree peoples are dependent on one another for all the essential foodstuffs. I do not think that even concerning foodstuffs, after the ten years that have passed, a demonstration is necessary, at least not for Frenchmen. At this time the English are experiencing it in their turn. However, in the modern world the question is not merely one of food production; it is the entire industrial production that is closely dependent on the international economy, not only, as it is often said, for its raw materials: copper, zinc, tin, etc., but for semimanufactured products also, machines or machine parts, for the supply of which every country is obliged to look to foreign countries. Exchanges have been established in international commerce which are not the simple exchanges between industrial and agricultural countries. A division of labor has resulted which is infinitely more subtle. Industrial specialization has made it more and more indispensable to resort to the manufactured products of other countries, not for public consumption but for the production of merchandise itself. The entire evolution of the nineteenth century, by the incredible increase in the means of transportation, by the awakening of an ever increasing number of countries to economic life, has demonstrated that national economies are now nothing more than portions of a vast international economy. This is not a theoretical viewpoint resulting from a motive to establish free trade of whose practice everyone knows the difficulties; it is simply the realization of a fact which is very general and incontestable, and from which everyone may draw the practical conclusions he prefers. The development of protectionism is only the effort to escape from the immediate consequences of this great fact that protectionism is incapable of eliminating. However, an international economy cannot exist without an international currency, and as this international currency can only be gold, the most utopic of utopias consists in believing that gold can be eliminated from the present economy of the world. So long as there does not exist a world communism regulating the distribution of articles of food for the community of nations, trade, more or less regulated, more or less hampered, will remain at the base of international relations. Much has been said about barter during these last twenty years. It suffices to reflect for a second on the fact that all barter systems, particularly the international, rest on an evaluation of the merchandise exchanged, and that this evaluation itself supposes an international currency. As for barter within the country, it suffices to recall what happened during the last war, when this system was established under the pressure of circumstances, to realize what so-called accommodations it offers.

The present world being what it is, that is, a world of exchange—and only the visionaries can believe that it will cease to be so—the return, sooner or later, to an international standard, which can only be the gold standard, may be considered as a certainty, because this return is an economic necessity. However, this return can be more or less facilitated by the monetary decisions that will be taken during the coming years.

How, in fact, return to gold as international standard? Here I am not sure to have your entire adherence, and yet, the opinion that I would like to express has become almost a classical thesis. I should remind you that it was defended brilliantly before your company, after the First World War, by our colleague, Mr. Colson, with whom even then I was entirely in agreement.

It is clear that a gold basis is indispensable for national currencies if one wishes to insure their regular interconvertibility. But this basis should be in proportion to the national money in circulation. It constitutes, if you wish, the cash balance of each country, just as in every industrial or commercial enterprise there is a cash balance with which to meet bills that come due. This balance, of course, must bear a certain relation, experience shows, with the total of claims that may be made and be proportionate, therefore, to the total commerce of each country.

Let us suppose now that, by a sudden phenomenon, the turnover of an undertaking is multiplied by four or five, that instead of a billion, for example, it becomes abruptly equal to five billion, while its gold reserve remains the same. In order to recover its liquidity, that is to say, to be able to face all the payments that may be required of it, it would have to increase its cash balance, to triple or quadruple it. So it is with each country. If its turnover is abruptly multiplied by four or five, the bulk of immediate payments which it must face increases in the same proportion and it must increase its gold reserve by an equivalent amount. It is here that we meet a difficulty. In the course of the last two great wars the production of gold has not increased the world gold-stocks in the same proportion as the large countries have multiplied their national currency, in France by 15 or 20, in America by 3 or 4, in England by 4 or 5. The quantities of gold representing the national reserves, with the exception of the United States, far from having increased, have, on the contrary, decreased.

How, then, can the adjustment to which I alluded before be made, between the total international commitments of each country and the gold-reserve of this same country? There is only one solution possible, the solution that was in use in monarchical France and in many other countries, and that many countries have resorted to in the course of the last year, to wit: unable to increase its gold-reserve, a country adjusts the nominal value of its obligations to the gold-reserve it owns. One cannot multiply the gold-reserve at will, but one can divide the nominal value of commitments by the figure one desires. This is what is called devaluation. It consists in declaring that the gold value of a franc, a pound sterling, a dollar, shall henceforth be only the 20th, the 5th, or the half of what it was before the deluge of paper money.

I do not intend to discuss here the particularities of devaluation that still await us. I wish simply to note the following point. It is that devaluation is not a remedy, but rather the simple legal acknowledgment of an economic fact. It is the acknowledgment of a state of affairs created by the war and its aftermath that one cannot turn back: the creation of enormous quantities of paper money. If one refuses to recognize this, one thereby refuses to try to find for the paper money in circulation the only base which can restore the convertibility of the various currencies into one another by means of an international standard, which means gold. To recognize this fact is obviously not to find a remedy for all the difficulties we are facing; it is simply to eliminate an obstacle to the restoration of international trade. It is not the restoration itself. And this simple acknowledgment is not without difficulty, because the coefficient by which one must divide the nominal unity used at present in each country, in order to determine its equivalent rate in gold, can only be found gropingly and by approximation. However, the right choice of the new gold-parity is of fundamental importance, as once adopted in each country, the economic life gets adjusted to it, and these adjustments may entail serious consequences and always cause painful frictions.

However, this is the difficult task facing nearly all the governments of the world. That this task has become an international one, that it supposes international comprehension of the repercussions of each national solution, is exactly the novelty and the difficulty of the problem now before the great economic entities of the world. Until now, during the course of history, the monetary problem has always been solved individually by each involved country. It would be a great historic novelty if it should be otherwise in the course of the following years. Will our times give evidence of an international monetary agreement by the restoration of the gold standard? If we are successful, a great hour will have struck at the clock of history. If we should not succeed, the gold standard will triumph by other means. What is certain is that it will triumph.