Delphi Complete Works of Stephen Leacock, page 680
None of this sounds necessary but it all is.
A pound sterling (a sovereign), after meaning a lot of other things, came to mean (under the coinage act of 1816) and continued to mean until England went off the gold standard, a coin weighing in all 123.27 grains and being 11/12 or .9166 pure gold, and 1/12 alloy.
Gold with this particular amount of alloy (1 in 12) was called standard gold or crown gold. An ounce of “standard gold”, it follows from what has been said, would coin into rather less than 4 sovereigns: to be exact, and using the money divisions of the sovereign to mean fractions, it would coin into £3-17-10-½. Since coinage at the mint (apart from a trifle charge for assaying the metal) was free and unlimited, this was the amount in money which the mint was supposed to give for gold. Putting it in terms of pure gold or “fine ounces” it corresponds to a “value” of £4-4-11-½ to the ounce. But this “value” is not a price in the real sense. It is an equation. It is like saying that 2 pints make a quart. Many people were very silly, or confused, over this, and now that the situation is mixed up with paper they are sillier still. What made confusion a little pardonable was that in practice gold in England was by the public taken not to the mint but to the Bank of England. The Bank was called upon to give £3-17-9 for standard gold. The difference between this and the equation-value represents the fact that immediate payment removes the delay of coinage and hence is worth a small item of interest. The Bank by law had to pay this and could pay more. At times when, for various reasons, the Bank wanted gold it paid a little more, because the people bringing gold didn’t actually take away sovereign coins for the full amount but accepted in whole or in part a bank credit. So the Bank at times paid a little extra, which gave the appearance of a fluctuating “price of gold” in London (from £3-17-9 to the full mint price).
The U. S. mint accepted unlimited gold in fine ounces, mixed with alloy 1 part in 10 and made gold dollars (in pieces of 5, 10 and 20) which contain 23.22 grains of pure gold. This meant that a fine ounce of gold coined (with the alloy added) into $20.67. This meant again as a matter of arithmetic that the relative gold content, and hence the relative value of U. S. gold dollar and British gold sovereign (from 1836-1919) stood as 4.86 2/3 dollars to one sovereign. This was called the mint part of exchange and was the rate at which, other things being equal, people paid U. S. dollars to get British sovereigns. In practice things very seldom equal and wouldn’t stay equal long. Either a surplus of people in America wanted to pay down dollars and have payments in England made in sovereigns or vice versa. At the “worst come to the worst” they could always send the actual gold across the ocean. But this costs money for transport, safe-keeping, insurance and interest on its being out of service for a week or so. It may be said that it costs almost four cents as a maximum to send one sovereign across the ocean. Hence an English or American person wanting a “draft” across the ocean would pay, if he had to, as much as 4 cents per sovereign to get it over, or be delighted to find it in the other way and find that his English sovereign would get him 4 cents extra in a draft expressed in U. S. dollars.
These up and down variations held in check by actual shipment of gold were called the “gold points” (4.82 2/3-4.90 2/3), and the fluctuation price of U. S. dollars and sovereigns was one of the “foreign exchanges”. There were similar ones for francs, roubles, marks, etc., exchanged into dollars, pounds, etc. In Canada we used a gods-awful form of computation of which not even the bank clerks understood the original meaning, let alone the Bank Presidents, — and which was based on the percentage to be added to an older, heavier, imaginary gold dollar (the one of Halifax currency) to make the new dollars of 4.86 2/3 to the pound. The expression 9-½ is par meant add 9-½ per cent. to 4.44 and you get 4.86 2/3. In reality the bank clerk had a money table hanging beside him which told him all about it, till the rush of the exchange in August of 1914 bust his table. Since then we count as the Americans do.
Till the Great War, the open mint, the liberty to buy and sell, and import and export gold formed what was called the international gold standard. In the opinion of many people, of whom I am one, it was one of the greatest benefits to the world for a whole century. Automatically it moved gold from mining to non-mining countries: automatically, though more slowly and with friction, it kept tending to level world prices because high prices attracted goods and sent out domestic money, which tended to lower prices and contrariwise low prices attracted foreign gold. In both cases the foreign exchange supplied the mechanism. The broad general life of the world’s commerce moved and breathed as with the slow heart beat of a great animal. Now it chokes, strangles and gasps for the air of monetary liberty.
The gold standard has in its time been passionately denounced. First of all it was denounced (in the later part of the nineteenth century) by labour, later by capital. In the nineteenth century, the expansion of business and the relative shortage of gold made low wages and depression. So it was argued: of the facts there was no doubt: of the causes there might be. Hence the cry of oppressed labour against gold. “You shall not,” said Jennings Bryan in 1896, “press down upon the brow of labour this crown of thorns, you shall not crucify mankind upon a cross of gold”. The cry, unhappily, echoes still when now the cross would mean, as crosses should, salvation.
Later on, in the post-war period, something of the same complaint has been raised by the economists. “The gold standard”, so claims one of the least ignorant (one dare not say most eminent of economists), “is as antiquated as the stage coach”. The metaphor is a favourite one of people without imagination who do not realize that the stage coach was murdered by the railway train and has now come back as its ghost, — the motor car, — to haunt the railway. “Coaches” blow their horns again from New York to San Francisco and from the Oasis of Timgad to Timbuctoo. But few economists ever had imagination.
What was meant was that the gold standard was rigid, and would mean, for lack of enough gold, a lowering of prices that would choke business, or, by superabundance of gold and of credit based on it, a burst of high prices that would turn business into a fever. What was needed, argued and still argue these people, was a managed currency, in which by manipulating the issue of credit-documents prices can be made to go up or go down and stay quiet and business be guided accordingly.
Let it be noted right here, with wide open eyes, that the phrase managed currency has quite recently been taken up in Western Canada in a sense utterly different from that used by London bankers and economists. What an Alberta farmer means by a “managed currency” is some system by which a decent man can borrow, if he has to borrow, on fair terms and get money to carry on and good prices for his crops and cattle, — manage that and he’s satisfied. And little does he think that the despised “gold standard” offers us in Canada the means to do it. What the London banker and economist and financier mean, if you get down to brass tacks, is that the three of them will “manage the currency” by themselves in a closed room. If so I’d like to sit in with them and make it four. I’d undertake to come out rich. Talking in ideal terms, “managed currency” means that all dangerous inflation of credit will be carefully prevented, that dull business will be gradually strengthened, etc., etc. Among a set of omniscient angels, so it would be. With the world as it is, and with us as we are, I don’t think it would be. It would just afford a new means in which the organized power of collective finance could act in its own interest. Money must be automatic or nothing. It must be a fact, like a beaverskin, or a roll of tobacco, or a goat, or a bit of paper actually convertible into a bit of metal.
At present it is not a fact at all. Notice what has happened. The English pound sterling is just a bit of paper. If you buy fine ounces of gold with it the “price” in paper is about 140 shillings, and goes up and down like the price of eggs. So with the U. S. dollar but worse. An act of Congress permitted the executive government to lessen the fine gold content of the dollar. It was declared lessened in January 1934 to 13.714 grains. But this dollar is just imaginary, it is never coined and never bought and sold. The one bought and sold is the paper dollar, and its price paid in it for an ounce of gold runs now at about $35.00. Thus the paper dollar price of gold per ounce is at present close to the price in imaginary Roosevelt dollars the imaginary coinage of the U. S. But it is not really connected with it: it is only sitting beside it. For proof look on the same tree and you’ll see the Canadian dollar, another paper bird, sitting beside the American. Yet the Canadian dollar, not having been degraded, is still said to have a par of $20.67 to the ounce, still to contain 23.22 grains of pure gold.
Now the British government, through the Bank of England, keeps an imposing quantity of gold “behind” the paper, in 1935 about $1,600,000,000 (old standard). And the United States a super-imposing sum “behind” its paper currency, about $10,000,000,000 of gold, reckoned in the old dollar of coinage. But this money is not for redeeming the paper. It is just behind it, — like Satan. Both countries use stabilization funds to act as a brake on a movement of the paper exchange: that is, the English government can cause vast sums of actual gold to be sold, or bought, and so can the American, and hence the dollars and the pound may be driven along like a carriage team. But a stabilization in reality is very limited in its ultimate power. It can stop speculators from trying to work the market. It can bridge a temporary gap in the national movement of commerce. But that is all. Behind it the tide of real commodities can sweep it away: it is only an embankment not a hill: it is a see-saw, not a sidewalk: the plate balanced on a juggler’s chin, not a plate on a cupboard shelf.
Moreover the production of gold as a market commodity differs from that of everything else. The market is, — has been hitherto, — unlimited, since the product is money itself. The factor that counts is the amount payable in wages and costs; hence the harder the times, the lower the wages, the greater the profit of mining. The industry thrives on hard times, lives on depression. In the days of open mints, since the coined product was itself the medium of payment of wages and costs, this tendency kept trying to equalize itself in the long run: kept trying to run to an equation when it cost just about a dollar in gold wages, to produce a dollar in gold metal; at any less cost the industry would boom; at a greater cost it would slacken. The huge accumulated world stock acted like a fly wheel to prevent rapid alternations of speed and slack. But the tendency was there.
All this changes when gold is sold only for inconvertible paper. The market is still unlimited but the more paper loses value the higher is the relative value of gold.
Costs, and especially wages, do not fall as fast as the gold value inflated does. Hence under these circumstances the industry enjoys a premium. This is exactly what happened to Canadian gold mining after the War as the paper value of gold rose from $20.67 per fine ounce to $35.00 an ounce.
It is true that our government “sets the price”, or thinks it does: but only in the sense that a farmer “sets the clock”. The farmer doesn’t make it noon: he only takes it from somewhere else. So our government merely estimates what it thinks to be about the price in the world open market and pays that sum for gold.
This stimulus on mining, if not carried too far, is a wonderful thing for us. It gives us a vast and growing industry, induces private people to incur the cost of exploration, and, as a bye-product, opens up thousands of square miles, makes railways possible, and brings the development of power. The worst thing we can do is to over-tax the gold mining industry. A certain amount of the bonus or premium that falls to it from the good luck of the appreciation of gold, we may with propriety take away for the public use: but not too much: not more than the traffic will bear: indeed a good deal less so as to keep the traffic humming. In this as in so much else the conflict of Dominion and Province works our ruin: each wants its share and more.
It is commonly thought that the stimulus to mining described above would be lost under a return to the gold standard. This is absolutely not so. If we return to a gold dollar of 23.22 grains of fine gold we lose it: but at a lower gold content we keep it, or even improve it. We could add alloy to give the coins size. If we set the gold content at less than the paper value of gold, there would be a stimulus to mining that would last for years: as it ran out we could lower the content again: this is easily done, this occasional shift of content of the coin, but using “gold certificates” for circulation and keeping the actual coin or gold piled up: redemption is actual and immediate but the amount of gold actually paid can vary.
This is as much stimulus as the industry needs or ought to have: anything more spells ultimate ruin to gold mining. Paper dollars and sovereigns and francs and marks, never redeemed, cannot last. It is a wonder that they have lasted so long. England and France and the United States, etc., carry vast reserves of unused, unusable gold in vaults as a source of “credit”. Its credit is getting to be much like that of Mumbo-Jumbo, the wooden idol of the African village. It is not what Mumbo-Jumbo does. Mumbo-Jumbo sits still. It’s the idea that surrounds him.
If it ever happens that a great nation that has no mines and a heap of gold, as France has, (over $4,000,000,000 in 1935) decides to sell the gold and do without it, to set up an “index standard” and a “managed currency”, it is all over with gold.
Gold has hardly any utility value. The fact that about a quarter of the annual product in fine ounces is used in industry is mainly a consequence of its honour and glory. It glitters. Its real use is low, — false teeth, coffin handles and bank directors fees, etc. But engineers don’t want it. Apart from glory, a gun-metal watch case is better than gold, a gold knife won’t kill a pig, and a gold goblet is greasy beside a ten cent glass. Other things are not only “as good as gold”, they are better.
When in the middle seventies the German Empire decided to demonetize silver, down it came with a run. So it may with gold. Ten years ago, with all the “stage coach” talk, it looked quite likely. Now it is all right at present, but something may happen, — must happen sooner or later, — unless gold is restored to use and redemption. And if it happens, — good-bye Pickle Crow, farewell Noranda, — the grass will grow in the streets of Johannesberg and the cows will pasture on the Rand.
Redemption used to be thought of as implying an unlimited “reserve”, as meaning that it must never stop. Some ancient Victorian, in a bank crisis of the 1860’s, once said that London was within “forty-eight hours of barter”. The magnificent idiocy of the phrase was as imposing as magnificent idiocy is: it has come down to us. But the whole world has had now about ten years of barter (if non-gold payment means barter) and is still revolving. Redemption can be used even if at times it “empties” the till; even if the Treasury has to say “yes, we have no bananas”. What we should do in Canada is to restore gold, at a low content level, open the mint at that, redeem our money in and out and when we have no gold left wait till more comes in. At the worst we are no worse off than today.
The claim that the gold standard under present conditions “clogs” can be met by the simpler rejoinder “let it clog”.
But what is the use of arguing: Let’s put on our leather suits and go aeroplaning for gold. We’ll sell it somehow.
CHAPTER SEVEN
DEBIT AND CREDIT IN ALBERTA
SUNNY ALBERTA AND How It Went Broke — The New Winds of Doctrine — Boom-Boom — Legislating Prosperity — The Cup and the Lip — Court Decisions as the Wicked Fairy — What the Social Credit Movement Offered.
Sunny Alberta is a land of contrasts. In point of altitude it begins at the summit of the Rocky Mountains and ends at the bottom of the Saskatchewan. In temperature it will freeze you at a few hours notice with forty below zero and then wipe it all out with a Chinook wind and beg your pardon for it. In point of latent resources, in and under the soil, — coal, gas, metals, — there’s literally no end of it. But for immediate resources, it, the province, finds it a little hard to borrow twenty-five cents.
The province consists of a stretch of territory that descends from the eastern slope of the Rocky Mountains out on to the great plain watered by the Saskatchewan and the Peace. In area, a quarter of a million square miles, it exceeds all German-speaking Europe, Germany, Austria and Switzerland, — and more than doubles the British Isles. Its population of three-quarters of a million would just make one first class European city.
The southern boundary of the province is the line of the 49th parallel, separating Alberta from the United States. Nor is the division purely imaginary. The relative infertility of the southern area, once labelled the Great Desert of the Saskatchewan, and the relative sparseness of the population, gives to the southern boundary something of reality; Alberta is not in the United States.
Eastward, beyond the 110th meridian begins the sister province of Saskatchewan, so akin in nearly every economic feature that to the outside world the two seem one. What one thinks today, the other thinks tomorrow. They share, among the Provinces of Canada, the distinction of being without a sea coast, land-locked, without maritime tradition or connection. Their “foreign policy” is limited to the question of American boot-leggers and Montana horse-thieves.
Alberta ends at the northern parallel of sixty degrees, beyond which begins the Northern Territory, still controlled by the Federal Government. But there are so few inhabitants that the division is of little account. In the south and centre of the province, where once were the “prairies” of the Great Plains, extends the grain country of the “wheat industry”, — mechanized, rationalized, specialized, scornful of the old-time “farming”. This is the country now humbled from pride to disaster. Further north is more varied country, rivers and hills, and on the great watershed of the Peace, (Alberta shares it with British Columbia), — one finds a wooded undulating landscape, such as Upper Canada once was, a country that in fancy seems the last hope of the sunset, still unspoiled by civilization.
