6. How to Bring Gold Back to Europe

We recall that at that time and until about 1925, an irresistible current carried gold toward the United States, while we accused them, and quite wrongly, of wishing to monopolize the gold of the world, whereas this influx, far from being agreeable to them, hampered their monetary policy considerably. Whence this disequilibrium? It proceeded from a very simple 77 THE TRIUMPH OF GOLD fact, the responsibility for which was due entirely to the Central Banks of London and Paris. In spite of the depreciation of the franc and the pound sterling in relation to the dollar, these banks, in fact, continued the policy to buy gold at the same official rate as before the war. The Bank of France continued the policy to pay a price of five francs for the amount of gold contained in a dollar, whereas the paper dollar offered on the exchanges was being sold at about fifteen francs. Under these conditions, the producers of gold had an obvious interest in selling their gold to the United States and offering the dollars thus obtained on the French exchange, where they received fifteen francs for every dollar.

The situation was the same with regard to the pound sterling. In consequence, the entire production of gold was being sold to the United States. The pro ducers obtained dollars at the Federal Bank which were sold on the foreign exchanges and for which they received a much larger amount of francs or pounds than if they had sold gold directly to the Bank of France or the Bank of England. Therein is found the secret of the "gold corner" by the United States, which gave rise at the same time to so many useless controversies and so many false interpretations. At the present time the situation is the opposite. A higher price in dollars is paid for gold in the free markets than is paid by the Federal Reserve Bank of the United States, the latter paying thirty-five dollars per ounce. In the free markets an 78 THE TRIUMPH OF GOLD ounce is worth forty or even fifty dollars. Gold has a greater demand than the dollar, as was the case with regard to the franc and the pound sterling after the First World War. Normally, then, the offer of gold in New York should stop and gold should be offered in the foreign free markets, whether in ex change for the dollars which circulate in foreign countries, or in exchange for lire, francs, or sterling, thus making possible the purchase of a larger amount of dollars per ounce of gold than would be obtained by selling in N ew York. In other words, the situation in the different markets is such today that instead of going to New York gold should go to the free markets, first to the European markets, where it would find in terms of national currencies a higher dollar value than if it were sold in New York.

Therefore, the conditions existing today are such that the newly produced gold should no longer be offered to the United States but in the free markets. For this reason the producers of South Africa claim the right to sell their gold at their price, and if one were to give this movement freedom to develop one would find that gold would be offered in the European markets, which now have an insufficient amount of gold. To the countries that have the greatest need of gold it would be the means of sta bilizing their paper money, whose fluctuations disturb the movement of commerce and all financial opera tions. Such a course, on the other hand, would be ex· 79 THE TRIUMPH OF GOLD tremely favorable to the United States, for the rea son that the new gold would be used to stabilize E,uropean currencies instead of becoming lost in the reserves at Fort Knox, where at the present time it is buried, constituting a source of great worry to the American Treasury and an important element of inflation.

However, in order that such a course be estab lished, and established to the advantage of the European nations, certain conditions are necessary. First of all, undoubtedly, the free markets in gold must be encouraged, especially in Europe, and the importation and exportation of the metal which she so greatly needs should be facilitated by all means. A second condition is that the importers of gold, having obtained francs, for example, should not be tempted to convert them immediately into dollars, which would raise the rate of the dollar in the free markets. This condition will be fulfilled immediately if the importers are not frightened by the policy of inflation and find in the capital market investments which will provide profits and not losses. This is exactly what took place in France in 1926 and 1927. Finally, a last condition in order that a movement so favorable to world economy should get started and develop, is that the Central Bank, especially in France, should itself be in a position to buy gold freely in the market, at the price which it wishes. It is this freedom, accorded to the Bank of France by M. Poincare, on August 7, 1926, that enabled French 80 THE TRIUMPH OF GOLD money to recover under the direction of this wise President. It is really a paradox that this indispensable liberty should continue to be denied to our Central Bank by the International Monetary Fund which seems more anxious to interpret its statute juridically than to fulfill the object for which it ,vas created, which is to aid in obtaining the international stabili zation of currencies.

8:1 7 Change in Orientation (Economie contemporaine J January 1950) If there is a striking feature of all the postwar periods following all the great wars which have been financed by paper money, it is the reversal of prices after more or less time has elapsed. This has occurred after the Napoleonic wars, after the Civil War, after the war of 1870-71, and after the war of 1914-18. If one were to go back further into the past one would find it also after the great wars of the eighteenth cen tury. With notable regularity, the increase in prices, which necessarily occurs during the war and during the next few years after it, is followed by a decline, more or less sudden, more or less prolonged, but which is the normal consequence of the previous increase. This phenomenon is so constant, and it has as82 THE TRIUMPH OF GOLD sumed in certain cases such proportions that the main preoccupation of governments following the Second World War was to prevent its recurrence.