9. The Distribution of Gold in the World

(L’Opinion, April 13, 1950)

It is curious to see how certain economic doctrines which are true in peace time still retain their prestige when war conditions have rendered them inapplicable. This is true, today, of the doctrines concerning the distribution of gold in the world.

We can remember how much the British were concerned by the bad distribution of gold after the First World War. The accumulation of gold in the United States stirred their indignation. Yet, it was the English policy itself (imitated also by France) which forced the producers of gold to sell the precious metal to the United States, by refusing to modify the purchase price of gold by the Bank of England. The producers thus obtained dollars which, when sold in the exchange market, brought them an amount of sterling much greater than the Bank of England would have paid for the same weight of the precious metal.

Today, England and the United States, through the regulations of the International Monetary Fund, are committing the same error. They are doing everything to favor the accumulation of the newly extracted gold in New York, while the gold reserves of the American Treasury are already too plentiful.

Why is that? The English economic policy rests entirely on the idea that in order to reverse the gold currents one must first secure a favorable commercial balance, whence the great and courageous efforts of our neighbors to increase their exports and reduce their imports. In my opinion, however, it is completely useless to try to reach the desired goal by these means.

England has such an unfavorable balance of trade that it is out of the question to try to reverse it by a simple effort at restricting imports and forcing exports. The same impossibility exists for most of the European countries. The balances of trade of the more active countries among them were unfavorable long before the war, and these deficits were offset by all sorts of invisible exports, whose quantity at present is too low to be able to achieve the results of bygone days. It will remain insufficient as long as the capital movements have not been resumed, which assume a stable currency. However, in the universal system of paper money to which we are condemned for the moment, there exists another way of favoring the currents of gold, and by that the stabilization of currencies, completely independent of the balance of trade. We refer to a mechanism that was already used after the First World War, and by means of which the currents of gold are established without any link with the balance of trade.

Gold today has become a merchandise whose price, save in New York, where it has a fixed value, is established according to offer and demand of the precious metal on the free markets. Gold moves there where it is best paid in the currency of the country which imports it. At the present time (and notwithstanding the recent drop in the price of gold) the prices on the free markets, and particularly on the French market, are converted into an amount in dollars above that paid by the American Treasury to the importers of gold. We find here a principle of distribution which is different from, but still analogous to, that which was in force when the Western countries were all under the gold standard and tied to the convertibility of bank notes, and when gold currents were established according to the purchasing power of said gold in the merchandise of said country. Thus, thanks to the free markets, a new distribution of gold is being made, modifying the previous distribution which was too uniquely favorable to the Treasury of the United States. The latter can only rejoice in this.

Indeed, this new distribution of gold conforms to the actual needs of the different markets, that is to say, to the more or less intense desires of the populations to see the paper money replaced by a currency based on gold.

It is thus in accord with the best economic reasoning and prepares opportunely for the return to an international gold standard. The first concern of the International Monetary Fund should not be to prevent the creation of free markets in gold, but to encourage them in every way. By a strange aberration, its present policy consists, on the contrary, in reinforcing a too obvious maldistribution.

Let us add still this. In order that the gold sold on the free markets shall remain there, and that its price in paper money not be exchanged immediately for dollars, it is necessary and sufficient that these markets offer opportunities for investments which are both sure and profitable. If one considers the rates of interest offered in a market such as Paris at the present time, one will notice without difficulty that they are far superior to those prevailing in New York. The sellers of gold in Paris enjoy, therefore, an advantage in investing the francs they receive for the metal in French stocks and securities.

Thus, little by little, the normal play of the prices of gold on the one hand, and the interest rates on the other, is gradually causing a redistribution of the precious metal more in conformity with the aims pursued by the United States itself in its effort to integrate the continent economically.

The representatives of France at the International Monetary Fund should press with all their authority for the restoration of the free markets. They should give their unstinting cooperation to the efforts being made by the representatives of South Africa in the same direction. These representatives, while appearing to defend primarily the interests of the gold mines of their countries, are really defending the interests of international commerce all over the world. It concerns the future of the gold standard which the International Monetary Fund was originally supposed to prepare, which alone will restore to those countries ravaged by inflation the first and the most indispensable kind of security: monetary security.