5. Gold and Paper

Next to the consumers, the producers of gold. These know that their outlets are unlimited. As everyQile de sires 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 pro ducers, 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 74 THE TRIUMPH OF GOLD 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 re.. duction, but it is in bad taste to mention it. Wisdom would counsel, on the contrary, to ac knowledge 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 begin nIng 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 76 THE TRIUMPH OF GOLD checking it by new issues of paper money, evidently. The public's distrust of paper money is too strong, and its increase in every cQuntry 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 instrurnent 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 coun tries that do not produce any, their general interest suggests that they encourage importation. France finds itself in this latter position. Under these circum stances, 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 inter national currency and thus prepare the stabilization of the franc? 16 6 How to Bring Gold Back to Europe (La Vie franfaise J July 1, 1949) There is a striking analogy between the situation of the American Federal Reserve banks at the present time and the situation of the Banks of France and England after the First World War. And this analogy en~bles us to conceive of a policy which in time will lead the stream of gold from America toward Europe by a contrary movement to that which took place after 1918.