The whole complication arises from the fact that the so-called “value” measured by gold is still arbitrary. It is political: not economic. If the world had a common conception of order and freedom, we could then, to great advantage, employ a common standard of value; for as far as the science of economics is concerned boundaries are not conventions to be respected but destroyed. Politically, until freedom and self imposed order are general, boundaries are essential. Internationally we are not ready for free flow. With our varying conceptions of economic order we might just as well run a 100,000 volt current through our Christmas tree illuminations, as throw all the different international pressure systems into one, at this time. Gold will probably serve for many years to come as a transformer and conductor of international energy.
If we put our own house in order in economic terms, we shall still require gold for international trade. Instead of making two calculations as we do today, converting British pounds into terms of bullion and bullion into terms of American dollars, we shall deal frankly in bullion. An American merchant would cable London for a price on tin. He would be told it was 20 oz. of gold per ton. He would telephone his bank, and instead of asking for the exchange rate he would ask the forward price of gold. On the parity of other commodity prices he might well be told that it was $40 per ounce, and he would thus know that his tin would cost him $800 per ton. This, in effect, is what we do today, but less simply.
It is very probable that there was no more than sufficient gold in international circulation before the war than was needed for trade. If there had been enough the business of the international bullion-dealer would have had insufficient excitement to hold some of the great men who enjoy it. It is only necessary to study the illuminating comparative charts prepared by Professor Irving Fisher to realize that the dominance of gold was international.[1] The same paradoxical symptom of periodic “over-production” was in evidence in a still underfed
- ↑ “Why Is the Dollar Shrinking?” Irving Fisher. Pages 163–167. Macmillan Co., New York, 1914.
