5. Gold and Paper

(L’Opinion, March 3, 1949)

Gold is once again in the foreground of public attention. It had to return there, in spite of all the efforts of the governments to banish its embarrassing presence.

The recent decision of South Africa to sell a part of its gold on the free markets has given the problem a new acuteness. The paradoxical situation may be summarized in the following manner.

On the one side, the public—in France, India, China, Libya, and elsewhere—shows its confidence in gold. A sort of immense international plebiscite is taking place today in its favor. This plebiscite is apparent by the growing importance of gold transactions in the free markets and the growth of these markets. Let us not say that there is here only a perverse appetite for a metal which, according to the quip made by Edison, is only good for gilding picture frames and filling teeth. If the public seeks gold it is because it is convinced that it is the most stable of the mediums of exchange and that one day or other it will become such again officially. The numerous authors who have discussed money are all in agreement on at least one point: it is that a currency is a means of exchange that everyone desires. It is this universal consensus that enables an object to become money. That there exists today a universal consensus in favor of gold one would have to be blind to deny.

Next to the consumers, the producers of gold. These know that their outlets are unlimited. As everyone desires gold at whatever price, they continue, therefore, to produce it. But here the difficulties begin. Officially they can sell only at the price fixed by the central banks. In the United States, this price is thirty-five dollars per ounce. However, at this price the mines do not cover their expenses, as the general increase in salaries, in machinery, etc., has increased all the production costs in terms of paper money. The producers, therefore, try to sell in the free markets, where prices are fixed by supply and demand, and where demand is willing to pay in paper all that it takes to obtain gold. This is what South Africa has just done. We are told that Mexico will follow. More modestly, the French colonial mines have already shown the way, to the great anxiety of governments and the Monetary Fund of Bretton Woods.

Why this anxiety? Simply because the free sale of gold has brought strikingly to the notice of all the reduction in the value of paper-money, all papers, including the dollar. Everyone knows about this reduction, but it is in bad taste to mention it.

Wisdom would counsel, on the contrary, to acknowledge the general bankruptcy of national paper moneys and by the legalizing of the free markets to prepare a return to the only possible international money, that is, gold. This is because as of now one can foresee the return to gold with the same certainty that one was able back in 1945 to predict the futility of the efforts of a few fanatics for the continuation of a price control that was soon made untenable by returning abundance.

An all-important consideration should bring all governments to favor free markets in gold until such time as the central banks themselves shall modify their purchase price. It is that present regulations tend to restrict the production of gold at the very moment when its increase would seem urgent and necessary.

A fall in prices expressed in paper-money is beginning in all the international markets at this moment. Within a few months the problem which will present itself to the governments—to all the governments—will be to check it. There could be no question of checking it by new issues of paper money, evidently. The public’s distrust of paper money is too strong, and its increase in every country would only amplify the confusion of the exchange rates and the disorder in international commerce, at the same time as the social crises. The fall in prices can only be checked, therefore, if it is accompanied by a general return to the only instrument of international payment which has the confidence of the public: gold. But in order to do this, gold must be produced in sufficient quantity so that, in accordance with a well-proven phenomenon, its increase will support the prices which the increase in production of goods tends to lower.

The interest of governments today is to encourage by all means the production of gold. For the countries that do not produce any, their general interest suggests that they encourage importation. France finds itself in this latter position. Under these circumstances, will she continue her restrictions to freedom of importation? Or will she take advantage of these circumstances to restore her stock of gold, by all means possible, that is, restore her stock of international currency and thus prepare the stabilization of the franc?