Gold and Hard Times
GOLD AND HARD TIMES POLITICAL facts and personalities enough are in ¦¦• the background of the general upset in Latin America, but the underlying cause may nevertheless be an inscrutable,...
...Seiior Leguia had been in virtual control of his country for twenty years, during which time he broke up a sufficient number of estates and obliged a large enough number of Indians to work at road building to earn considerable personal unpopularity...
...and when times changed and the commercial barometer plunged downward, neighboring Bolivia's revolution set an example far from unattractive...
...But the depression came along, the influence of malcontents increased, and a new government has been established...
...Of course the situation is too complex to diagnose at a glance...
...The outlook in Great Britain is so dark that economic concerns have virtually crowded other matters out of conversation...
...The contention is advanced that both the present distribution of gold and the lack of industrial equilibrium are matters "for which nobody can be said to be responsible, except as somebody may be responsible for the war...
...and that the deficiency in the supply of monetary gold in relation to credit requirements became so marked in 1929 that an immediate and disastrous price fall resulted...
...Consequently the factor of wealth distribution is probably the basic influence...
...Americans generally have looked sceptically at this version of the collapse...
...Thus gradually expectation of earnings was pushed to the breaking point, while inventories of unsold goods mounted up...
...Undue concentration of credit power would seem to mean lessened distributed ability to buy, regardless of possible accumulation of stocks...
...Along with this there went a long story of financial and other activity on the part of the United States...
...In general the second may be considered of far greater importance than the first, since goods must pay for goods regardless of the shifting gold supply...
...We in the United States, though beset with grave unemployment and production problems, nevertheless do not feel what has happened with anything like the same intensity as various foreign lands...
...That the gold standard is the world's economic arbiter and that it is guilty at present of gross favoritism and inefficiency is the charge made in a brilliant article contributed to the London Economist of July 5 by Sir Henry Strakosch...
...The trouble is not so much the war as the social and industrial laissez aller upon which the world has relied for the successful accomplishment of the work of reconstruction...
...In conformity with good Hispanic custom, soldiers are in control...
...To some extent this stability was based upon equalization of demand and supply, but to some extent also it reposed upon a general tendency to manipulate or fix prices...
...Otherwise yellow coin will be "bid up" until purchasing power is still further reduced...
...The first, sponsored by leading British economists, does not deny the influence of tariffs and production surpluses but lays chief stress on monetary factors...
...But doubtless the events do form a part of the general picture of existing depression, so that society can now have a look at visible political results of the malady...
...Here again, however, qualifications are in order...
...Hungary and the majority of south European states have been caught short to an extent which renders all predictions regarding the future improbable...
...that gold has been accumulated and sterilized by some countries to the disadvantage of others, France possessing more than 16 percent of the total, while the United States has almost 40 percent...
...At present dividend expectations have largely been discounted, so that many stocks are comparatively speaking cheap on a conservative estimate of their returns...
...But inventories of industrial stocks, which in practice means not marketed raw materials, are still large while the opportunity for reducing them has decreased owing to curtailed employment...
...Ford's employees, to give an example, might want three automobiles, an eight-room house with two baths, a hundred books and several fur coats...
...If this view is correct, some way must immediately be found of bringing the "buried gold" possessed by France, the United States and Argentina into world circulation...
...His argument reposes upon an array of facts and figures which cannot be analyzed here but which have awakened the deepest interest...
...But none of them has enough money to make these purchases...
...GOLD AND HARD TIMES POLITICAL facts and personalities enough are in ¦¦• the background of the general upset in Latin America, but the underlying cause may nevertheless be an inscrutable, world-wide economic "depression...
...When Peru forced Augusto Leguia, its ancient and dictatorial president, to sign his abdication, one era of political action in the land of the Incas apparently reached its close...
...To date the disturbances have not been noticeably sanguinary...
...Thus it would seem that the depression of the present is one more after-effect of the catastrophic disturbance of 1914...
...This is the American, and to some extent, the German view...
...This in turn depends upon the utterly mysterious forces of credit and its uses...
...In theory there is no limit to the demand for goods although, owing to displacement, the supply of this or that commodity, wheat for instance, may be excessive...
...Shortly thereafter a ruler of similar gifts and achievements, Hipolito Irigoyen of Argentina, was routed out of office to the tune of random shots and vociferous shouting...
...Richard H. Whitney, president of the New York Stock Exchange, summarized the prevailing opinions of his countrymen by saying that "overproduction was the basic cause of the depression...
...In a recent address Mr...
...But revolutionary feeling has spread so rapidly to other parts of South America that all the gunpowder has not yet been set off...
...The trend of commodity prices throughout the period from 1925 to 1929 was relatively stable...
...Broadly speaking there are now two main theses...
...Sir Henry sums up by saying: "The truth that the gold standard has bound together the civilized world for good or evil in the greatest international partnership known to history, that this partnership, while conferring benefits on each partner, also imposes on them stern duties, and that trangressions by any one partner inflict hardships on the rest, is hardly realized...
...Whitney does...
...The prices of purchasable commodities almost never depend upon the prices of raw materials but depend upon the composite trend of prices and costs— rents, wages, mercantile charges—affixed to the original figure...
...A clause in the Dawes Plan had for its purpose insuring Germany against erratic changes in value of gold, and the Bank for International Settlements had been regarded as "the only eventual hope for a satisfactory solution" of the difficulties underlying active international monetary cooperation...
...Meanwhile production costs had been cut, and the surplus earnings were fed back to industry in the form of dividends and improvements...
...This is really an endeavor to reconcile the British and the American points of view, although the writer concludes that "there is no tangible evidence that changes in the world's supply of gold have had anything to do with the price disturbance of the last year...
...If therefore the prices of commodities had declined gradually during the years under consideration, we should not have been "saving up" all the inevitable decline for the close of last year...
...But the phenomenon of maladjustment is with us and reveals the unrest-causing fact that "the process of exchange is in some way impeded" so that while there exists a superabundance of goods in many varieties of raw materials as well as a desire to exchange them, the current is mysteriously turned off...
...Sefior Irigoyen had, to be sure, viewed the United States with eyes utterly his own...
...The second lays most of the responsibility upon overproduction...
...If American industry had disbursed still more in wages and less in dividends, the catastrophe might have been staved off...
...And it follows, by way of a parallel, that if the purchasing power of the world had been less unevenly distributed, the present market tie-up might never have occurred...
...One of the best discussions of the entire situation is to be found in the current bulletin issued by the National City Bank of New York...
...Sir Josiah Stamp, writing in the Nation and Athenaeum, endorses these views, although he holds that they had previously been urged by himself and others...
...Every one of Mr...
...Germany is at the moment engaged in a farflung, violent discussion of finance...
...Undoubtedly much is to be said in favor of this analysis, although many would put it far less simply than Mr...
...The memorandum advances three main contentions: that gold has appreciated in value 32.1 percent during the past five years, a fact which cannot be explained by appealing to "overproduction...
...As a consequence the social physicians have set about finding the cause of the ailment, in the hope that some effective remedy may be found...
...The difficulties involved are, of course, obvious...
...Briefly speaking, he hated the colossal republic to the north as much as Carrie Nation detested Old Crow...
Vol. 12 • September 1930 • No. 21
