Again Gold, Gold

The dramatic drain of gold from the Bank of England into the Bank of France (TIME, Dec. i et ante) continued last week at quickened tempo, reached $1,750,000 daily. When $5,000,000 of virgin gold arrived in England from South Africa, the French snapped it up, contracted for another $5,000,000 shipment due this week. In London the price of gold was forced up to 855 1 1/2d. per fine ounce,* the highest price since British currency went back onto a gold basis in 1925. In Paris the gold reserve of the Bank of France swelled to the largest total in history, and circulation of French banknotes backed by this gold also enlarged to the maximum volume for all time: 75,950,000,000 francs. With France and the U. S. continuing their joint dominance of three-fifths of the world's monetary gold, attention riveted upon the strange aquatic behavior of Governor Montagu Collett Norman of the Bank of England. Mr. Norman (with his valet) and the Bank of England's recently acquired U. S. Economist Oliver Sprague (with his valet) boarded at Southampton the S. S. Bremen bound for New York. Already aboard was Governor George L. Harrison of the Federal Reserve Bank of New York, fresh from a swing around Europe which included conferences with Governor Clement Moret of the Bank of France in Paris and with President of the Reichsbank Hans Luther in Berlin, whence he boarded the Bremen at Bremen. Seemingly there was to be a transatlantic Norman-Harrison conference. There was a trans-channel conference. But as the Bremen neared Cherbourg the two English valets were suddenly told to repack their masters' belongings. The British liner Majestic was told to stand by at Cherbourg breakwater for the Governor of the Bank of England. When the Bremen reached Cherbourg breakwater a tug puffed out. Down, down, down an exciting rope-ladder climbed nimble Governor Norman, Economist Sprague and valets. The tug puffed over to the Majestic. Hand over hand, foot over foot, up another rope-ladder climbed masters & servants. The Governor of the Bank of England was returned to Southampton safely by the Majestic, reached London just 22 hours after he originally left. Neither Governor Norman in London, nor Governor Harrison when he reached Manhattan, commented. But President William Graham of the British Board of Trade, a member of the MacDonald Cabinet, delivered himself impulsively to a Laborite audience in Middlesborough. "I fervently hope," he cried, "that American and British financial authorities will be able to arrive at an agreement in the employment of gold reserves which will provide on a sound basis a great credit structure and so minister to the common recovery. That necessarily depends on the central banks. But the British Government is alive to the necessities of the situation."

Gold reserves in the U. S. were up to $4,500,000,000 last week, down in Britain to $750,000,000. The gold theory of the MacDonald Government (TIME, Dec. 1) is that the "stupendous hoard" of gold in the U. S. and France has become "largely sterilized" and must be got somehow into "fecund international circulation" before British prosperity, world prosperity or even U. S. prosperity can return.

Owen D. Young on Gold. Just back from Europe last week, Tycoon Owen D. Young addressed Manhattan's famed Lotos Club in a manner which caused him to be mooted again for the White House (see p. 15). But Mr. Young also said things which made German editors leap joyously next day to the conclusion that he favors scaling down what Germany must pay under the Young Plan because of the increasing price of gold. * Said Tycoon Young, giving a discreet, humorous, personal twist to the awful and stupendous problem which the Young Plan was devised to solve: "It is quite natural in times of depreciated commodity and security prices that debtors should ask for a readjustment of their debts. I would be glad to do so myself. Unfortunately, it takes twice as many securities to pay my debts as it did when I incurred them. I could make a very good moral argument, if anyone would listen to me, that my debts should be reduced, but I would not expect to get a hearing unless my creditor was satisfied of my incapacity to pay. If he was, then it would be for the creditor to say, not for me, what he wished to do about it. And as between great nations, I should hope for a breadth of view and a sympathy of understanding, in dealing with problems of this kind, greater than an individual has any right to expect from his own creditor. He, I found, is very hardhearted. Let America not be so.''* Gold and Gates McGarrah. Also in Manhattan last week was famed Gates W. McGarrah, president of the B. I. S. (Bank for International Settlements) at Basle, Switzerland, which has replaced the defunct office for reparation payments in Berlin (TIME, Sept. 23, et seq.). Switzerland has worked wonders with Tycoon McGarrah. When he reluctantly resigned as board chairman of the Federal Reserve Bank of New York to go abroad and try to make the Young Plan work, no clam was closer, no Scotsman more cautious, dour. There was danger then lest reporters trap Mr. McGarrah into what could be construed as an admission that the B. I. S. might become "The World Bank," the omnivorous big brother, the dread competitor of the central banks of the world's nations. One short year ago publicists for the B. I. S. were successfully emplanting in the public mind that it would be "a cash register for German reparations" (TIME, Nov. 25, 1929), not a competitor. All this the work of Tycoon McGarrah has changed. The "cash register" has become a brother and nobody minds, is growing bigger every day without exciting fear. "The public is all wrong about the B.L.S.," said Tycoon McGarrah last week. "It imagines that the chief function of the institution is to collect German payments and distribute them to the debtor nations. This now amounts to only 20% of the business of the B. I. S.I) With the joy of a great man doing a great work that is fairly booming along. Gates W. McGarrah told guests at a bankers' banquet that: 1) The B. L S. may some day become the central depository for all the gold of all the world's central banks; 2) Already the B. I. S. is actively coordinating the business of the central banks; 3) It is moving toward the position of a central, world agency for regulating international exchange; 4) At the time of the Hitler crisis in Germany (TIME, Sept. 12 et seq.) the B. I. S. stepped in and supported the German mark. "Indeed," concluded Tycoon McGarrah, "one of our principal functions is to assist exchanges in time of distress."

* Equivalent to $20.71. On the same day a fine ounce of gold could be purchased in New York for $20.67.

*Though the price of gold in terms of Bank of England paper is up only a trifle per ounce, the price of gold in raw materials is up many dollars per ounce.

* Not a reference to the so-called "Reparations Bonds'' or ''Young Plan Bonds" (German Government 5 1/2s). Generous though the U. S. may be to the Allies (who owe her war debts), generous though they may be to Germany (who owes them Reparations), the German treasury is still pledged on a business basis to pay interest and principal to holders of these bonds who, like Mr. Young's creditors, will doubtless prove "very hard-hearted." The fact that German 5 1/2 have markedly declined (see p. 19) means merely that .there is some uneasiness lest Germany thumb her nose at the hard-hearted ones, repudiate even her business obligations, and sink to the credit-ruined status of China or of a business man who said in dead earnest to his creditors: "I will not pay my debts."

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