Gold Fever

In the financial centers of the world last week, the gold fever spread like the blood-tingling news of a rich new strike. Day after day on the New York Stock Exchange, the cheap stock of a Philippine gold-mining company, Benguet Consolidated Mining Co., was among the heaviest traded. Wall Street's Bache & Co. was busily selling unrefined gold (the only kind that can be legally held in the U.S.) at premium prices ($44 an ounce). In London, South African gold-mining stocks were ones eagerly bought in a falling market.

All this speculative fever had been stirred up by the hope that the U.S. would raise the price of gold, and thereby devalue the dollar. To this, Secretary of the Treasury John Snyder had said no, a thousand times no. He had flatly declared that the U.S. will not change the price of gold, that it has not even considered such a move. Still, the gossip and gabble continued.

Pressure. Most of it came from U.S. gold miners and such big gold-producing nations as Canada and South Africa. Their argument: at the present price of $35 an ounce, gold mining is unprofitable, and production is slumping. Furthermore, it is unfair to hold down the price of gold when all other commodities have risen.

As the world's biggest gold buyer, the argument continued, the U.S. should raise its buying price to about $50 an ounce. Failing that, it should declare a free market in gold, i.e., drop the ban against citizens' buying, selling or owning gold, and cancel the requirement that miners sell only to the Federal Government. Producers confidently felt that freeing gold would boost the price, since it is now selling for as high as $70 an ounce in the free gold marts of India, China, France and more than a dozen other nations.

A hike in the official U.S. gold price, went the argument, would give gold-holding nations a windfall profit to ease their dollar deficits. On its part, the U.S. could use the paper profit from its $24.5 billion gold hoard for loans to other nations.

Sound & Fury. For all their persuasive details, such arguments were built on shaky economic ground. Were gold miners entitled to a raise? Since 1927 the price of gold has gone up 69%, while wholesale prices in general have risen only 60%. Actually, a free market would not change the price unless the U.S. raised its official price also, because the Treasury is required by law to keep gold at $35 an ounce. While a gold boost would give Britain and other U.S. allies a modest profit on their gold holdings, the greatest beneficiary might be Russia, probably the world's biggest gold producer. The biggest reason of all for not boosting the price of gold at this time was simply that such a move would nullify the recent currency devaluations abroad.

While a higher gold price would probably have little effect on domestic prices, some thought that there was still a chance that it might give the U.S. another slight whiff of inflation. Dr. Edwin G. Nourse, recently resigned member of the President's Council of Economic Advisers, thought that "any tinkering with the dollar at this moment of delicate domestic and international adjustment would be one of the surest roads to demoralization and possible disaster."

The Gold Standard. Devaluation of the dollar, however, is only one part of the broad and complex question of gold.

Many businessmen, economists and bankers are plumping for more drastic measures. They want the U.S. to return to the gold standard, i.e., make dollars freely convertible into gold. Their argument; it is the only way to check Government spending. On the gold standard, so the theory goes, whenever the public loses confidence in its money because of federal deficits, the public simply turns its money in for gold. By thus cutting down the nation's gold reserves, a limit is put on the money supply, both public and private credit is tightened, and pressure is put on the Federal Government to balance its budget.

In San Francisco last week, at a convention of the American Bankers Association, big bluff President Allan Sproul of the Federal Reserve Bank of New York blasted holes in these arguments. Said he: "Much of the nostalgia for gold convertibility is based ... on fragrant memories ... of the great period of gold convertibility in the world from 1819 to 1914." In those days, Allan Sproul pointed out, a stable world made the gold standard workable; it was not the gold standard that made the world stable. And the gold standard could operate only so long as the feverish search for gold, as in the rush over the Chilkoot Pass into the Klondike in 1896, expanded output enough to keep up with the enormous expansion of credit and industry.

The fiscal stability of the world, said Sproul, ended with World War I, and would not be restored "until some way has been found to eliminate the lack of balance between our economy and that of the rest of the world, other than by gifts and grants in aid."

There is no need to return to the gold standard, he said, because the dollar, solidly backed by U.S. industrial production, has become an anchor for the currency of the world. At best, said Sproul, the gold standard would be a "crude and harsh" check on Government spending, giving the nation's monetary control to a sometimes panicky public. Said he: "I suggest that anyone who is worried about the dollar concentrate on the correction of those tendencies in our economic and political life which have brought us a deficit of several billion dollars in our federal budget, at a time when taxes are high and production, employment and income are near record levels."

"Great Confidence." Many of the bankers agreed with Sproul, so far as the present is concerned, that any drastic change in gold makes no economic sense. But many disagreed with his interment of the gold standard. They thought, along with W. Randolph Burgess, chairman of the Executive Committee of Manhattan's National City Bank, that the U.S. should start working toward the gold standard as its ultimate monetary goal. Said Burgess to the A.B.A.: "I have great confidence that the world will return to the gold standard . . . [but] if you try to force the pace by resuming gold payments before the foundations are laid through Government policies on the budget, on credit and on prices, the gold released may simply move into hoards and become the tool of the speculator . . . Gold payments are the seal of approval of good money."

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