14. Prices Quoted in Gold

(La Vie Française, November 9, 1951)

Once more we find the problem of money acute, and not only in France. Great Britain, in turn, asks herself if her reserves of dollars and gold will be sufficient to maintain the present rate of sterling, while the countries in the sterling areas seek to transform their sterling into gold. The most disquieting feature of the present situation is that the governments themselves, confronted with this alarm, do not seem to know in which direction they should turn.

For the moment, while toying with the idea of escalators, they seek to control the level of prices. Too many attempts in the last six years have demonstrated the futility of these efforts and the public shows its skepticism once more by buying gold.

Has not the time come for governments to take a position clearly and courageously in regard to the return to gold? To recognize, without equivocation, that no monetary stability is possible without restoring the only known international money, and to turn firmly toward its reestablishment?

For nearly twelve years, the governments have of one accord treated gold as an international delinquent. It is stopped at the frontiers; those who carry it are punished. Its sale, as well as its purchase, is forbidden to private individuals, as if it were cocaine. The most daring (also the wisest), like the French government, have authorized a free market within the country. Switzerland, though gorged with the yellow metal, still controls its entry and exit. Meanwhile, wherever it can do so without danger, the public shows clearly its desire to possess gold.

The urgent step to take is first to restore to gold its normal status as a precious metal. Gold is a merchandise which, like iron and steel, wheat and cotton, should be able to enter and leave according to its price, to be sold where it is best paid. This is the only way to prepare its future return to its monetary status. The government that at the present time would allow gold to enter and leave freely, would allow the price of gold to establish itself freely in paper money, that would authorize its bank of issue to purchase gold in the market at the price it might wish (and perhaps also sell it), whether directly or through a special agency, and that would, finally, permit that prices be quoted in gold as well as in paper money, such a government, by showing its willingness to return to the only stable money, would immediately reassure the public, and would have no trouble in maintaining a more or less constant rate between paper money and gold.

The mere fact of declaring this willingness would serve as an example to the other countries, and would gradually restore monetary confidence.

In France, such a policy, accompanied by the abolition of the estate-taxes in direct line (which is an additional pretext for the hoarding of gold) and backed, of course, by maintaining a strict budgetary equilibrium, would put a rapid end to these flares of alarm which appear periodically in the gold market, as well as on the Stock Exchange.

The devaluation of money, of which one hears again, could not give in the circumstances any tangible results. Exports have reached their maximum, according to all appearances, and can hardly be increased.

As to limiting imports, we have seen by the efforts made in the last five years in Great Britain, that this cannot restore the balance of payments.

One can no longer conceal the fact that the International Monetary Fund has clearly failed in its mission. Instead of bringing us closer to an international monetary standard (which was its true mission), it has organized a supranational monetary management based on maintaining paper moneys and proscribing gold. The futility of these efforts showed itself a few weeks ago when the gold-producing countries obtained permission to sell their production at a premium. Can one appeal to the Fund to obtain a reversal of its policy? I do not believe so. It is up to each country, therefore, to take the most efficient measures to protect itself against the occurrences of monetary crises.

An old prejudice caused certain minds to fear the simultaneous operation of two series of prices, the prices in gold and the prices in paper. This fear can be explained and is justified in the case of a purely local depreciation of the money. But the depreciation of the paper moneys has become universal. The dollar itself is worth, in merchandise, only half of what it was worth ten years ago. Maintaining the purchase price of gold at thirty-five dollars per ounce by the Treasury of the United States no longer deceives anyone and is a hindrance to all.

To come back to reality, one must allow gold to find its price in paper money in all the great markets. The day that is done the rates at which the indispensable stabilization can be effected will be practically fixed. It will only remain to legalize them. And if, to maintain them, the aid of the United States should still be necessary, it can be granted without trouble, as its re-evaluated gold reserves will largely suffice to assure the convertibility of the moneys.