Letter: An Interesting Letter from a Reader. (1920)

Letter to the Editors from the November 1920 issue of the Socialist Standard

To the Editor.

Dear Sirs, —The article “Paradox or Illusion” which appeared in your July issue should be read by all who desire their minds cleared of the bunkum served up by the daily Press.

The vicious reasoning that leads to a “vicious circle” conclusion is effectively dealt with. Therefore it surprised me not a little to find a discordant in the person of ” Bannochie,” whose contribution appeared in last month’s issue.

Our friend assumes, apparently, that as the market price of gold is above the mint price, the law upon which your conclusions are based is inoperative,

Is it not probable that this unusual phenomenon of gold premium is due to the chaotic state of the foreign exchanges, and not to an excessive issue of paper money, and that the sum total of prices still determine the sum total of money and not vice versa ?

A perusal of the metal market quotations shows that the price of gold varies inversely with the exchange rate for American dollars. The Government is redeeming a portion of the debt contracted during the war. The usual method adopted in the repayment of foreign loans is the cancellation of “bills” purchased from the exporters of goods to the creditor country. “Bills” are, however, at a premium, and it may be more economical to purchase gold and export it than to purchase “bills,” which, incidentally, by reducing the number available for importers, would tend to depreciate the rate of exchange still further.

No private individual is allowed to draw sovereigns from the Bank for export, but he may purchase gold bullion. Consequently the keen competition for gold to evade the necessity of buying ‘”bills” forces the price of gold to a premium.

And now for the point at issue:

Every “bill” endorsed is a promise to pay in gold.

It matters not the method, or the expense incurred in the process. The question of premiums and discounts is, strictly speaking, a domestic one.

Goods have had their values expressed in terms of gold, and equal quantities of gold have equal value, nothing more or less.

Yours faithfully, 

Wm. Nicholls.

Our Comment.

Mr. Nicholls’s views are correct, as is easily seen when one calls to mind the large number of countries that are in debt owing to the war. This means that not only here, but in every country in Europe, there is a scramble for gold either to meet the interest on this debt or to pay balances for goods received. As the gold is, obviously, not paid for by gold, but by goods or credit, it simply means that more goods, or more credit, is being offered for the gold to-day. Hence its “price”—a term causing great confusion in the minds of people at the moment, is higher than before.—Ed. Com.