Gold Standard or Goods Standards (The Joseph Fisher Lecture in Commerce, University of Adelaide, 26 September 1934)

Literature › Works

L. G. Melville (1934). Gold Standard or Goods Standards (The Joseph Fisher Lecture in Commerce, University of Adelaide, 26 September 1934). Joseph Fisher Lecture in Commerce. The Hassell Press, Adelaide.

Type	primary source
Scope	Comparative and methods
Method	policy analysis
Period studied	1925–1934
Regions	Australia, Great Britain, United States, gold bloc (France, Belgium, Switzerland, Holland), sterling bloc
Themes	macro fiscal finance debt, comparative theory
Citation key	melville1934

Argument

Melville, economic adviser to the Commonwealth Bank of Australia, argues that a return to an international gold standard is both probable and preferable to national 'goods standards' (money managed to a price index). He rejects the claim that gold caused the Depression, citing central-bank gold reserves that rose faster than 3 per cent a year in 1925-29. He argues that the post-1929 fall in prices and currency depreciation have effectively enlarged the supply of gold, so a shortage need not delay a return. He doubts that monetary management can remove short-period price fluctuations, which are the ones linked to booms and slumps. He warns that managed national currencies invite political pressure, competitive depreciation and autarky. He concedes his case is 'not altogether impartial'.

Evidence and method

Statistical tables of central-bank and government gold stocks by country, 1924-33. Gold production and stock growth percentages. Rough population growth rates by continent. A Kitchin graph of gold stocks against wholesale prices, submitted to the League of Nations Gold Delegation. Official declarations and statements by the BIS, the Midland Bank, the London Chamber of Commerce and the 1933 Commonwealth declaration. A list of countries returning to gold, 1925-30.

Findings

• Gold reserves of central banks grew fast enough in 1925-29 that gold scarcity cannot explain the Depression. (p. 13)

  It can scarcely be contended, therefore, that the annual production of gold was inadequate.

• Gold accumulation in 1927-30 was concentrated in France, which he reads as symptomatic of other troubles rather than a gold-standard failure. (p. 11)

  Out of a total of $1,600 million added to the rel5erves of central banks between 1927 and 1930, France absorbed $1,300 million, and Italy, Belgium, and Switzerland $169 million.

• Gold is rejected as the sole or main cause of the Depression because other pre-1929 factors suffice to explain it. (p. 10)

  is solely or mainly due to the gold :;tandard shows a singular lack of proportion

• Currency depreciation after 1931 effectively enlarged the real supply of gold for the sterling and dollar countries. (p. 15)

  Since the pound and the dollar have fallen about 40 per cent., the quantity of gold ill Great Britain and the United States has been increased about 67 per cent.

• Depreciation and falling prices have, in effect, increased the supply of gold, so supply is no reason to defer a return. (p. 15)

  Thus the events of the last few years have, in effect, greatly increased the supply of gold.

• A price-index standard would not remove booms and slumps, because they stem from short-period price movements that monetary policy cannot control. (p. 18)

  I am afraid, therefore, that a goods standard will not prevent booms and depressions.

• Gold is a necessary international reserve, since foreign currencies may depreciate or be lost in war. (p. 20)

  It sounds attractive; but it would ,york Yery badly.

• Competitive depreciation of managed national currencies, with tariffs and quotas in retaliation, would produce monetary chaos. (p. 22)

  Competition in the depreciation of currencies, and in the erection of economic defences against the trade of other countries, could only lead to monetary and economic chaos.

• Undervalued currencies shift trade without raising total output, so their gains are temporary. (p. 22)

  Undervalued currencies only reshuffle trade without adding to the stream of goods.

• He predicts that a gold-based monetary system will be restored. (p. 10)

  can, then, infer that a gold standard and not a goods standard will be the basis of the monetary system of the future.

• As an important gold producer, Australia stands to benefit from a restored gold standard. (p. 23)

  The benefits Australia would secure from the restoration of the gold standard are substantial.