The Socialist Forum: Some Questions About Gold
Elvaston Place, S.W.
Editor of the Socialist Standard.
Sir,
In October, you wrote: “The illusion that lack of gold has anything to do with the main problems is easily dispelled.” Is trade depression not a main problem ? No doubt a large part of the world’s economic difficulties are due to the lack of any plan in laissez-faire production and to the inequitable distribution of purchasing power resulting from private exploitation of the sources of wealth. But the best chance of modifying these conditions lies in the trades unions’ membership being increased, and the number of their members varies inversely with the percentage unemployed.
If the supply oi gold is inadequate for the alleged requirements of the central banks and their clients, then primary prices will be forced down ; such a fall in prices involves reduction in the demand for manufactures, and inadequate profit or prospective losses deter the entrepreneur class from operations which increase employment and wages. There is almost complete short-term correspondence between the relation of primary prices to costs and the numbers unemploved, while with the upward trend of prices from 1896 to 1915 there was only two-thirds the unemployment of the preceding twenty years when the trend of prices was downward. Thorp & Mitchell’s Business Annals shows seven times as many years of prosperity per year of depression for the upward periods, 1849-73 and 1896-1920 as for that from 1873 to 1896. Your reference to the “very great increase in the supply of gold from 1890 to 1914″ shows that you do not appreciate the meaning of the term, “relative gold supply,” i.e., the actual supply relative to an increasing demand. This rose but slowly from the year 1896, allowing for an average increase in prices of about 2 per cent. a year from the disastrously low level of 1894-98. Both employment and the standard of living, however, were much higher at the end of the period than at the beginning. In 1926, real wages in the United States, according to Professor P. H. Douglas, were one-quarter higher than in 1890-99, while for Great Britain the New Survey of London gives a figure one-third higher than in 1890.
With regard to the second part of the article, “The Gold Standard and the Crisis,” I should like to say that (1) a practical policy must adapt itself to changing conditions. At the beginning of 1931, Mr. Keynes—who was mainly responsible for the Macmillan Report—considered that Great Britain would be in a much stronger position for leading the world out ot the depression if sterling remained tied to gold. In the summer he no longer held that view. (2) Mr. Norman’s opinion as to the efficacy of Bank Rate is of no importance. Under the circumstances, a 9 per cent. rate would have been ineffective, but would probably have caused a panic. It might have been better if we had abandoned gold without first borrowing and then being pushed off, but to contend that the Bank should have maintained payments in gold, come what might, is to imagine that gold parity is an end in itself. The essential—as opposed to the ostensible—reason for high money rates is a sharp rise in the level of prices. And prices were falling heavily.
GEOFFREY BIDDULPH.
Mr. Biddulph’s remarks are only distantly related to the articles which he seeks to criticise. Further they reveal a complete lack of understanding of the Socialist view of the depression. Our contention is that the present crisis is merely a fresh manifestation of an ever-recurring phenomenon of capitalism. As such it does not create any new problem for the workers, whose political object should be the substitution of capitalist society by Socialism. Consequently the workers, as a class, have nothing to gain from any of the various measures—from tariffs and wheat quotas to currency reform—put forward to rescue capitalism from the mire in which its own inherent defects have landed it. By whatever means the depression is ended, capitalism, as a system, will remain intact. In other words the propertyless condition of the workers, the ending of which is, in our view, their sole concern, will persist. Reforms designed to make that condition less oppressive have no attractions for us. When we discussed the present trade depression it was with two objects in mind. In the first place we wished to show how the fundamental cause of this crisis—as of its predecessors—was the fact that goods are produced by wage-labour for profit and not for use. Secondly, we sought to refute certain of the explanations of the crisis that have been advanced, and to expose the incompetence in high places that it has revealed. As we carefully pointed out, we are not concerned to take sides on the question of gold versus managed standard; we merely gave an account of the events thai led up to the abandonment of the gold standard by this country.
Having made clear our position let us turn to Mr. Biddulph. Although he does not specifically say so, it would appear that his view is :—
(1) That the depression is attributable to a fall in the general price-level, itself the consequence of the fact that the rate of increase of the world’s gold has been less than the rate of increase in “the alleged requirements of Central Banks and their clients” for gold.
(2) That a rise in general prices is required to end the depression.
(3) That rising prices are desirable from the point of view of the workers.
The second and third points can be taken together. Even if it is conceded that the depression could be ended by a currency policy that would raise world prices, would the basic conditions of the workers be altered? For one thing would unemployment be eliminated? The most that Mr. Biddulph can claim for a period of rising prices is that unemployment (on the experience of 1896-1915) might be reduced to two-thirds of what it is at present. It is just because Capitalism cannot provide a full life for all, even given the most favourable business conditions, that we are Socialists. Unemployment is a symptom of a defective economic organisation and the defects it indicates remain when unemployment is relatively low as when it is relatively high. This is what reformers and those who talk of “years of prosperity” overlook when they urge their reforms and the taking of steps to restore “prosperity.”
So far as Mr. Biddulph’s first contention is concerned, that is open to two criticisms. Firstly, if it is correct, then Capitalism stands condemned on account of the incompetence of capitalists, for from his use of the word “alleged” in the phrase “alleged requirements of the Central Banks and their clients” for gold it is clear that these requirements were in his view capable of being reduced. In other words, the relative shortage of gold, which he believes to be at the root of the trouble, need not have manifested itself if the world’s leading bankers had possessed but an elementary knowledge of correct currency principles. This is to say that the crisis occurred because of the inability of those in charge ot the financial machine to run it properly. A system of production under which there is such scopes for incompetence to produce evil must stand condemned.
But in our view the crisis cannot be traced to monetary causes. Prices did not fall because of the decline in the relative gold supply but because, as periodically does and must happen under capitalism, goods were produced beyond the capacity of the market to absorb them.
The facts do not support the contrary view advanced by Mr. Biddulph.
The period from 1925 to 1929 was, for the world as a whole, one of increasing economic activity. Even here the national income was rising, and U.S.A. enjoyed the greatest boom in its history. The increase in the supply of gold during that period must have been sufficient to carry the increased volume of business, since economic expansion in fact occurred. In the face of this Mr. Biddulph’s theory requires that the rate of increase in the gold supply after 1929 was less than during the preceding 4 years. Unfortunately for the theory, however, the figures show exactly the opposite. According to the estimates of Mr. Kitchin (see “The Times,” February 18th, 1932), in the years from 1925 to 1928 the world’s gold production increased, as compared with the preceding year, by nil, 1.8 per cent., .04 per cent, and 1.3 per cent, respectively and in 1929 was 1.1 per cent, less than in 1928. On the other hand, in 1930 output rose by 3.5 per cent, above the 1929 level and in 1931 was even 4.4 per cent, more than in 1930.
But apart altogether from the question whether the relative supply of gold was or was not sufficient to maintain the 1929 price level, Mr. Biddulph has no justification for stating, without further evidence, that the crisis resulted from a fall in general prices. The price level was falling continuously up to 1929, yet the slump did not start until that year and indeed, as already stated, the period from 1925 to 1929 was one of economic expansion. This last fact destroys the whole of Mr. Biddulph’s case and completely disproves his implied assertion that periods of falling prices are periods of dwindling trade, reduced employment and declining “prosperity.” In this connection it is worth looking at some figures. Between 1924 and 1929 wholesale prices fell about 20 per cent. During the same period the Board of Trade index of industrial production rose about 14 per cent., and the numbers of insured workers in employment rose by nearly 9 per cent., although admittedly the percentage unemployed rose from 10.7 per cent, to 11.1 per cent.
Of those, such as Mr. Biddulph, who relate trade activity to rising prices, Mr. D. H. Robertson, the well-known economist, has well written that they speak “with the voice of the inflationist entrepreneur of all ages, claiming that the scales must always be weighed in (their) favour if (they) are to do (their) job properly” (The International Gold Problem, 1931, page 146).
So much for Mr. Biddulph’s main argument. The other points in his letter must, because of the lack of space, be dealt with only briefly.
(1) He implies that the standard of living rises with rising prices and vice versa. Sauerbeck’s index for 1873 was 111 and for 1896 was 61, a fall of about 45 per cent. Would Mr. Biddulph contend that the standard of living was lower in 1896 than in 1873?
(2) So far as the last paragraph of his letter is concerned, we regret that we cannot, without evidence, accept Mr. Biddulph’s view of the efficacy of the Bank Rate as being of greater value than the view of Mr. Montague Norman.
(3) As we do not enjoy the personal confidence of Mr. Keynes we are interested to be informed of his changes of opinion by Mr. Biddulph. We had, however, thought that Mr. Keynes had been opposed to the gold standard for some years. As long ago as 1925, Mr. Keynes was opposing a return to the gold standard, and advocating a “managed” currency. (See “Nation,” March, 1925.) The “Nation” (supposed to echo the opinions of Mr. Keynes) were attacking the gold standard early in 1931.
4) Finally, we would assure Mr. Biddulph that we fully appreciate the meaning ol the term “relative gold supply.” In fact, we understood the phrase to have been introduced into economic discussion by Prof, Cassel, and that among economists it had the meaning given to it by him. For Mr. Biddulph’s guidance we quote from “Fundamental Thoughts in Economics,” where Prof. Cassel writes : “I have introduced the conception of a relative gold supply, which is for any given year the actual gold supply divided by the normal gold supply.” Mr. Biddulph might compare this definition with that given in his letter above.
B. S.