Gold, Gold, Gold

Box after ponderous box of dull gold ingots was hauled up from the vaults of the Bank of England last week, rushed across the Channel to Paris, then lowered down, down into the vaults of the Bank of France, buried so deep that above them lies a subterranean lake.

The volume of this transfer reached last week and held a daily average of $1,000,000, climaxed a steady drain upon the life blood of London's famed "Old Lady of Threadneedle Street" which has been going on for months.* To be sure the Old Lady has received transfusions of virgin gold from South Africa; but last week her gold reserve was down to $794,000,000 while that of the Bank of France had mounted to the staggering total of $2,017,000,000.

Today nearly one-fifth of the world's entire supply of monetary gold is held in France, a little more than two-fifths in the U. S.--a circumstance unique in history. Certain statesmen, notably those of the British Labor Cabinet, hold that the "hoarding" of this vast treasure by France and the U. S. renders a great part of it "sterile." In London "sterilization" has become a common, an ominous word. It rolls glibly off the tongue pf the Rt. Hon. James Henry ("Jim") Thomas as a stock excuse for Britain's troubles. If only this sterile gold were put into fecund circulation, reasons Mr. Thomas, if only the three-fifths of the World's gold held by two nations were more widely distributed, then there would be a great quickening of world trade, a return of general prosperity.

Such ideas, if they were only the notions of Socialists, might be ignored by financiers. But last week the leading chieftains of international finance were plainly worried about Gold and the kindred problems of German reparations, Allied War debts. Within the fortnight Messrs John Pierpont Morgan and Owen D. Young were in London, conferring with Rt. Hon. Montagu Collett Norman, Governor of the Bank of England. Tipped off that Mr. Young was in Paris last week "incognito and making a great effort to keep his whereabouts secret," correspondents sought out Governor George Leslie Harrison of the New York Federal Reserve Bank at his Paris hotel, asked bluntly, "Have you been conferring with Owen D. Young?" Said Governor Harrison frostily, "I prefer not to say. . . . I am simply talking over monetary affairs. . . . Of course gold is always one of our problems.

Billion-Dollar Credit? Presently a report gained credence that the Old Lady of Threadneedle Street was seeking a credit abroad in the amount of one billion dollars. It was pointed out that short-term French credits in London last week almost equalled the gold reserve of the Bank of England, that the Old Lady must be ready to meet any sudden French demand, that she faces moreover two major Empire monetary problems: 1) Chancellor of the Exchequer Rt. Hon. Philip Snowden's reputed intent to convert a huge part of the $48,000,000,000 British 5% War bonds now outstanding, paying off the holders with the proceeds of a loan floated on current "cheap money" at a lower rate of interest; and 2) the imminent need in Australia for at least $200,000,000 of Dominion Government paper conversion.

First reaction on change in London to the billion-dollar loan report was a stout assertion in many quarters, that "except in wartime this country has never borrowed abroad. Any tampering with that tradition would be most unpopular."

It was then said that in order to meet this "psychological issue," Governor Montagu Norman of the Bank of England had in mind "reciprocal credits." That is, the Bank of France and the Bank of England would each extend to the other a credit of $1,000,000,000--though obviously only the Old Lady needed credit.

"We Shall All Go Bankrupt." Sir Josiah Charles Stamp, Liberal highpriest of Finance in London and a British member of the Young Plan Commission (TIME, Feb. 18, 1929, et seq.) said last week: "If we do not solve this gold problem we shall all go bankrupt in Europe!"

Sir Josiah remarked that what is universally called "the fall of commodity prices"--and last week nearly all were at record lows--might just as correctly be called "the rise in the price of gold." Since the Allied War debts and German reparations are both expressed in gold, and since the price of this metal is steadily rising, therefore, said Sir Josiah, "the burden [upon Europe] is now heavier than it was . . . and is rapidly increasing in weight."

Sir Josiah, who in 1914 guessed that the "net value" of Great Britain's "national wealth" was $71,550,000,000, guessed last week that it is $90,225,000,000* today.

Not Sterilized! If the British theory is correct, that three-fifths of all monetary gold lies "sterilized" in the U. S. and France, then doubtless the remaining two-fifths are too meagre a supply for the rest of the world--that is to say, the France-U. S. hoard is making "unsterilized" gold scarce, thereby driving up its price, producing the so-called "fall in commodity prices" and finally increasing the burden of Britain, Germany, et al.

In an effort to destroy this fabric of reasoning and explode the very concept of "sterilized gold," George Evan.Roberts, the U. S. member of the League of Nations Gold Committee and a potent vice president of National City Bank of New York, said last week in Paris:

"Unfortunately gold was not 'sterilized' [in the U. S.]. . . . Our net gain in monetary gold stock from 1914 to the end of 1929 was about $2,500,000,000, and the increase in outstanding bank credit was over $37,500,000,000, or about $15 of new credit for each dollar of gold. Whatever that may be, it is not sterilization."

Endeavoring to explain and to justify the Franco-U. S. gold situation, Banker Roberts continued:

"The stock of gold in France . . . has increased since 1914 by about the same percentage as the United States stock. The causes are different. The United States gained the increase in part by large favorable trade balances during and following the War and partly because of the fact that it was the only country on a gold basis from 1914 to 1925, and individuals, corporations and banking institutions thought it prudent to keep their reserves there.

"On the other hand, France lost a large amount of capital during the War and the period of currency depression following, which, in one way and another, was accumulated by French citizens abroad for safety. When the French currency was stabilized and confidence was restored, owners began to bring their capital home and have been doing so gradually ever since."

Banker Roberts concluded that as confidence is restored in foreign investment fields, as situations like that created in Germany by Adolf Hitler are smoothed over, the U. S.-French "sterilized" gold will begin to circulate abroad again in fecund fashion. "With a free flow of capital between nations the gold problem will take care of itself."

"We Shall Not Tear!" Sponsored by the paramount banks and bond houses of the World, $300,000,000 worth of so-called "Young Plan Bonds" were offered June 1 last in New York, London, Paris, Berlin, Belgium, Rome, Tokyo, Amsterdam, Zurich, Stockholm, at an average price of $90 per $100 bond, were oversubscribed everywhere with a rush which pushed the price up to $91.25 (TIME, May 19).

Last week these bonds sold in Manhattan for $68, a decline in value of 25% in less than six months. Officially this issue is known as "The German Government International 5 1/2% Thirty-Five Year Gold Bonds of 1930." Bought at last week's price they will return 8% on his money to the investor for the next 35 years--if the Young Plan remains sound and Germany continues to pay. But such a price as $68 is proof enough that confidence in the Young Plan has waned some 25%, reason enough to explain the alleged presence of Tycoon Young in Paris last week "incognito."*

In Berlin the German Foreign Minister, Dr. Julius Curtius, addressed the Reichsrat or Federal Council of the German States last week upon the Young Plan. "We shall not tear up the new plan," said he. "But we have not guaranteed its feasibility. . . . There has set in such a complete collapse of world economy, especially in its bearing on Germany's economic situation, as wholly to vitiate the suppositions upon which the plan is based."

In these circumstances, continued Dr. Curtius, the time may come when the German Government may reluctantly ask for a moratorium (postponement) of that portion (about two-thirds) of the payments scheduled under the Young Plan, known as the "postponable portion."

Should the German Government attempt to postpone the "non-postponable" one-third, this would be a step on the road to repudiation, a step which Dr. Curtius in effect promised that Germany will not take when he said last week, "We shall not tear up the plan."

What would happen if Germany should tear up the Young Plan is covered by the joint declaration of the British, French, Belgian, Italian and Japanese governments on Jan. 20, 1930. They announced that a defaulting Germany might expect to be brought before the World Court, and, if declared guilty, might expect the Allied Powers to "resume their full liberty of action."

This is the sole and final guarantee of the Young Plan Bonds, not guaranteed by the sellers, not guaranteed by the Bank for International Settlements, not guaranteed by the Allied Powers, but secured by the credit of the German Government and, if Germany chooses to default, resting ultimately for security upon a decision by Britain, France, Belgium, Italy and Japan as to whether or not they want to extort payment from Germany by force of arms.

Washington Expects, Demands. With the Young Plan on the carpet for inspection last week, the Hoover Administration thought it timely to announce once more through Undersecretary of the U. S. Treasury Ogden Livingston Mills that the sums which the Allies expect to receive from Germany and those which the Allies are expected to pay the U. S. in settlement of their War debts are "unrelated"--that even if Germany defaults, the U. S Government (not to be confused with U. S. holders of German 5 1/2's) will still expect and demand to be paid by the Allies.

*Omniverous, the French even bought last week virtually the whole of a $1,850,000 bar gold shipment from South Africa, then on its way to London. *His table of estimates:

Buildings . . . . . . . . . . . . . . . $22,500,000,000 Land . . . . . . . . . . . . . . . . . .4,750,000,000 Farmers' Capital . . . . . . . . . . 2,250,000,000 Profits & Interest. . . . . . . . . . 80,850,000,000 Profits ("below income tax level") . . . . . . . . . . . . . . . . . 2,375,000,000 Furniture & Movable Property. 7,500,000,000 Government & Local Property. 4,500,000,000 Total . . . . . . . . . . . . . . . . . . $124,725,000,000 Less Property Owned by Foreigners 2,500,000,000 "Total Gross Wealth". . $122,225,000,000 Less Debt Charges. . . . . . . . . 32,000,000,000 "Total Net Wealth" . . . . . . . . $92,225,000,000 *At Southampton last week as he sailed for Manhattan on the Aquitania, Mr. Young was not even asked by correspondents whether he had been in Paris. To their other eager questions he replied: "If I should start talking about moratoriums, gold and other interesting questions, as you ask, I would tip off the whole hand. . . . I am keeping quiet until the right time."

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