16. Progress in Monetary Conceptions

(L’Opinion, January 10, 1952)

In the contest between those who would return to gold and those who favor management (dirigisme) by paper money, one has to keep the score each time that the occasion presents itself. In this regard the end of 1951 brings some good news.

First, the abolition by Canada of its exchange controls. The privileged situation of that country, where capital flows in, makes it possible to restore freedom. That is a most enviable situation and one that has given Canada the opportunity to shake off the shackles of Bretton Woods. A good example to follow.

A second interesting measure is the relinquishing by the Bank of England of her monopoly of exchange operations, which henceforth may be carried on by approved banks with a wider margin than before in relation to official parity. Let us not exaggerate. It is merely a little more flexibility which has been introduced into the exchange market. From this point to carrying out the recent suggestions of Sir Frederick Leith Ross, with a view to bringing the English system closer to the more liberal Italian and French systems, there are still many steps to take and many obstacles to overcome. Nevertheless, it is a bit of elasticity which is introduced into a control whose rigidity has become a burden to all the world.

Thirdly, starting December 15, Switzerland abrogates all measures of control in the commerce in gold. The importation and exportation of uncoined gold, that is, in any form other than in coins, are allowed. Only the importation and exportation of coined gold remain subject to control.

Thus is gold restored to its normal status as metal. As I have mentioned elsewhere, this is the first step to take toward a logical organization of the gold system. One should begin by recognizing it as a metal, and restore to it, as a metal, all the liberties which other metals enjoy on the international market.

Shall we say that the situation in Switzerland is exceptional, like that of Canada? During the war years and the postwar years, Switzerland enjoyed a continuous influx of gold. Her reserves are not only sufficient, but overabundant. Far from desiring more gold reserves, Switzerland seeks to get rid of the excess of the yellow metal with which she is threatened.

The importance of the new measure is nevertheless very great. The conspiracy organized by the paper money theorists to banish gold from the normal transactions comes to an end, insofar as it concerns Switzerland. To transport gold in Switzerland is no longer considered a crime against the state, an offense against public morals. To import or export gold does not constitute a different operation from that of importing or exporting laces or chocolate.

Will the National Bank of Switzerland itself sell gold? The answer to this question is in suspense. It is extremely probable that it will be brought to this one day or another. For the moment, let us simply say that gold in Switzerland has become a metal like any other, accessible to all who desire it.

Finally (and this is perhaps the most significant event, since it concerns the United States) the National City Bank of New York devotes in its monthly circular of December 1951 (a circular which is read attentively by all economists and bankers of America), four pages to the drop in value of the dollar. It states that since 1939, the dollar has lost about 50 per cent of its purchasing power and that this drop preoccupies Americans. The person who saves, it says, compares with concern the 2 to 3 per cent earned by government bonds with an annual loss averaging about 5 per cent in the value of his money. In consequence, recognizing henceforth that the dollar has a decreasing value, the public looks for investments in real estate or stocks, as a protection against inflation in prices and the loss of the purchasing power of the dollar.

The conclusion which the Bulletin of the National City Bank draws from these considerations is particularly interesting. “It is gold,” it says, “which for centuries has had the best record as a store of value. Paper money has been good as long as it was issued by banks legally obligated to maintain its convertibility into gold at the loaner’s will. The worst recollection is that left by the paper money issued directly by the national treasuries, but the paper money created by a bank of issue is just as bad if the bank is exempted from its obligation of converting it into gold.” And the article concludes: “The simplest way for the government to restore confidence in money would be to revive the law of 1934 on the gold reserve, so as to reaffirm and strengthen the present bond of the dollar with gold, and to put an end to the dangerous notion that the principal function of the Federal Reserve banks is to provide the government with a money both cheap and progressively depreciated.”

The formula of the American writer remains a bit vague. It limits itself to asking for the return to the convertibility of the dollar into gold. He does not mention changing its price. But this position taken by one of the largest American banks against maintaining the system of paper money, this new insistence on the continuous depreciation of the dollar, until now not mentioned, marks an advance in the opinion of competent men.

No doubt that one swallow does not make a summer, but three or four swallows, at the beginning of 1952, already is not too bad.