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Chapter VI

Arbitraries and Equities

Gold, the basis of our present empirical currency, can be hoarded by the foolish or exported by the well-informed, and as a consequence the supply can be diminished by individual action. We are informed later. This private reduction of supply affects our so-called “value,” particularly those vital estimates of value expressed in our currency and credit instruments. It also affects our whole illogical basis of value,^[1] since the less well-informed holders of so-called gold currency, or other contracts to pay in gold, are left helpless and in the shadow of panic. All gold-standard governments, not excepting the United States,^[2] are technically bankrupt in terms of gold, and yet the more lowly citizen creditor finds in a crisis that some of the elementary equities of insolvency are not observed, since a few of the more powerful creditors who are often aliens have been able to collect their accounts in full, even though the fact of insolvency was common knowledge. This

1. Since there is no normal value for a so-called gold dollar, it would be fair to argue that deflation and inflation are purely comparative terms. If imports of gold lead to inflation then exports should lead to deflation. However, as there is some question upon this point, let us consult the most conservative authorities available.

   “Moreover, our gold reserves are so large that a continuation of the stream of gold imports might lead to a period of inflation. Rather than permit this we should, and eventually must, submit to the exportation of a part of our gold holdings…”—The Guaranty Survey, March 27, 1922, page 2. Published by The Guaranty Trust Company of New York.

   “As an answer to the argument that the importations of gold make for inflation, it is to be said that it would be most unwise to build a great fabric of credit on a temporary foundation. If this influx of gold should put prices up, by the same logic an efflux of it would put them down.”—National City Bank Bulletin, October, 1922, page 11. Published by the National City Bank, New York.

   Listening as a rather nervous bystander to this exchange of batteries, it would appear that the Guaranty Survey scores in logic, and the National City Bank in patriotism . The argument of the Guaranty Survey is not answered; but it should be shamed into silence. Has the wisdom of democracies been overlooked?

2. See pages 123–5.

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