Money and Trade

PRESIDENT STAPELLS introduced the speaker. Mr. Stevens was received with applause, and said :-I responded at once to the cordial invitation which I received to address you, and assure you of my appreciation of the honor, and also the deep sense of responsibility which must rest upon anyone who would address a body of men, such as I see here, on any subject of importance and material interest. My remarks will be made deliberately, and some of my views will not be accepted by you; indeed, some of you may find yourselves violently opposed to my views. I hope, however, to lay before you an assembly of facts upon which intelligent men may profitably ponder, and form conclusions which might be helpful in these times of financial stress and strain. The subject of Money and Trade, or the place of money in trade, is one that could stand a great deal of discussion, although you have been generous enough to offer me sufficient time to deal with it in a fairly comprehensive way.

About a year and a half ago the British Government appointed what is known as the McMillan Commission, whose report, made last June, I have had occasion to study with some care; though I do not agree with some of its conclusions, no one could read that report without profit; as an analysis of the topics which it undertakes to survey, it is perhaps superior to any presented to a Government for many years. As it is desirable that we should have clearly in our minds the importance of the theme, my address will be opened with a quotation from that report. The McMillan Committee report, in its introductory section, says:-"Any difficulty besetting our task has been due to the complexity, not to say mystery, in which the problems of finance are involved." I pause here to emphasize this-"the perplexity and mystery of problems of finance." The report continues:-"It is no exaggeration to say that to the vast majority even of intelligent people, the principles of finance and the theory of money are a closed book." That is a startling statement, in view of the fact that all of us are interested in money and largely affected by its influences upon the commercial and industrial activities of life. The Committee go on to say: "The foundations of our financial system are being re-examined. Dogmas hitherto regarded as canonical are being questioned." There is no doubt that a re-examination of our financial system is going on, and bearing this in mind I would ask you to fix in your memory a few facts which will form the basis of my arguments.

"The first fact I wish you to remember is this: The gold standard under which the world's commerce is transacted is not functioning successfully. Please do not jump to the conclusion that because I say this, I am knocking the gold standard; in London last year I discussed this with some of the leading bankers, and they admitted the fact. As Sir Robert Peel once said, the admission of the problem in front of you is half the battle; but if we bluntly say that the gold standard is functioning, there is not much hope of arriving at any solution. So I ask you to accept this fact, that with regard to the handling of the world's, commerce, the inter-change of trade between nations, and so on, the gold standard-the monetary system under which we are operating=is not functioning successfully. The second fact to be remembered is this:-France and the United States hold nearly seventy per cent of the world's gold, while they transact only twenty-six per cent of the world's business. That is a fact; not a matter for argument. The third point I ask you to fix in your memory is this:-While one-third of the human race, which might be termed Western Civilization, including Europe and North America, has so perfected its system of merchanized production that it has more goods than it can consume or sell, the other two-thirds of the human race, which can be classified as Eastern Civilization, is in dire need of those things which lie rotting in the possession of the other division, and over the whole human race hangs, like a funeral pall-want, poverty, idleness and social disintegration. I pause to emphasize that fact-two-thirds of the human race are in dire need of those things which the other third have in such abundance that they do not know how to dispose of them.

We talk about good times being around the corner because inventories are being depleted and, therefore, factories must replace depleted stocks. I admit that from that angle there may be stimulation of business, but remember that in Western Civilization we are equipped to produce in prodigious quantities, beyond our power to consume; and keep in mind this other fact-that the other two-thirds of the human race are in need of these things; surely it ought not to be beyond the wit of man to transfer goods to where they are needed. That is the job of the bankers of the world; may I say to the bankers here, I am not reflecting on you; I am merely laying before you the conditions. Some people seek to escape these intricate problems by saying, "trade is just barter." In some measure this is true, but money has become inextricably interwoven in all trade, personal and international. It is senseless for us to seek refuge behind the old observation that whatever happens to the monetary system in the course of trade is just barter. Russia started to do that about ten or twelve years ago, but the progress of events shows that although they have a, million men in arms to enforce their will, the Russians are coming back to the utilization of money, in the full sense of the term, in their trade affairs. They have their trusts, their banks, and so on, and they find that money is essential to the successful transaction of business, inside the country and, even more so, outside.

Money, then, is a medium by which an individual or corporation can dispose of something of value, temporarily postponing its replacement by another article, recognizing in the money the equivalent of goods or property which may readily be obtained in exchange for this money. Therein lies the necessity of money in the exchange of goods between either individuals or countries. We know that in order for money to be used, it is essential that it carry the confidence of those who are handling it in trade. If a monetary system fails to carry the confidence of persons throughout the world, exchange of goods becomes increasingly difficult. This is obvious, but I think it is necessary at times to re-state the simplest facts in order that we get a clear perspective of our, problem.

From time immemorial money has been represented in gold and silver coinage. Copper and bronze have been used in small transactions, but that metal has been so insignificant as to be immaterial in our discussion. Since 1873 the leading commercial countries of the world have used gold as the single basis or background for their currency issues in the settlement of international exchange obligations. The history of that particular period would repay any student of this subject for the time required in study. I can no more than briefly refer to it. In 1873 Germany received from France a billion dollars in gold bullion. Germany conceived the idea of going on the gold basis. Great Britain had been on a gold basis to a certain degree since 1815. Great Britain and Germany, from that time forward, went on a single gold basis. The result was a stream of German silver dumped on the markets of the world, and the older members of my audience will recall that we used to look askance at the German silver. France and the Latin countries were unable to absorb it, and in 1885 these countries were forced onto the gold basis. That is an historical fact worth bearing in mind when studying this problem. I would emphasize this point, that during the last thirty or forty years, recognizing the difficulty of spreading gold out thin enough to cover the requirements of the human race in trade and commerce, we have been building up fiduciary currency. In some measures this has supplemented gold, but the happenings of the last two weeks have made clear the precarious character of a fiduciary currency; that is, the moment there is anything in the nature of a trade disturbance, countries look askance upon the fiduciary currency of others, perhaps without a technical knowledge of its security, and they at once demand a gold settlement. I think I can safely say that fiduciary currency has proven itself precarious in character; the intensity with which the nations, bankers, tradesmen demand gold in settlement of international obligations is an illustration of this point.

I wish to say just a few words about the gold standard. All this has to do directly with the question of Money and Trade. There are certain essentials required of and gold standard before it can be considered a useful or effective method. The first essential is that it must be international; that is, the leading nations of the world must be upon the gold standard, if the gold standard, as such, is to successfully function in handling the trade of the world. Secondly, it must have a common attribute; that is, the monetary unit of each country should possess a gold value prescribed by law, and this value should be of a stabilized character. The very essence of a gold standard is stability of value in the monetary unit used in each country, because the stability of that unit is in comparison to units of other countries on the same standard. The third point is vitally important, and you will at once recognize how easily we depart from this particular essential of the gold standard, namely, there must be the right to freely import gold and tender it in unlimited quantities to the central authority, where it must be received and used in the currency of the country; on the other hand-and this is more important still-there also must be the unlimited right to withdraw and export gold in unlimited quantities. Otherwise, your gold standard fails as far as that particular country is concerned. That is the task put before the various countries who have the gold standard. Britain, Denmark, Sweden, several other countries have gone off the gold standard. The United States has half of the world's gold; France has about a fifth; the other countries are now faced with big, intricate and indefinable influences which are withdrawing gold from them, and an intense effort is being made to retain gold sufficient to bolster up the standard on which their currencies are based. The main purposes of an international gold standard are, briefly, as follows:-For the purpose of maintaining foreign exchange at a common level; to preserve a moderate uniformity of prices among the countries on a gold basis; and to secure stability of prices and exchange.

The McMillan Report was made in June, before Great Britain went off the gold standard, but even then the Report stated that the anticipations of those responsible for Great Britain returning to the gold standard in 1925 had not been fulfilled. I am going to give a few examples of the failure of the gold standard at the present time, as taken from the McMillan Report. That Report states that Britain should adhere to the gold standard--but they have gone off it. The Report says, further, that they should lower the value of gold in terms of commodities; in other words, an effort should be made, under this gold standard, to raise the prices of commodities. On that point they go into a long dissertation which I cannot take up at the moment; but the fact is that prices have not risen; they have fallen and are still falling everywhere. The third example of failure, as mentioned in the McMillan Report, is that after prices

had been raised they should be stabilized. Now there is no need whatever to stabilize prices throughout the world today, particularly in gold standard countries.

I wish to refer briefly to the prices of commodities, because it is necessary to keep this in mind. Take the average of the whole British index. In relation to the index in 1913 equaling 100, the index in 1924 stood at 160; in February last it stood at 91; and today it is somewhere about 78. The fluctuation runs thus: 160, 135, 127, 106, 115, and then it fell to about 91 and 78. Talk about stability of prices? Talk about keeping prices on a higher level? The direct opposite has been occurring, and is occurring; and all authorities agree that it would be a calamitous thing if prices were stabilized at the present low level.

A word on the visible supply of gold. The average supply we have had for monetary purposes is 10 billions of dollars. Keep in mind that this is not my opinion; these are facts. Of this amount, five billions of dollars, or one-half, is held by the United States, and one-fifth, or two billions, by France. That is, seventy per cent of the world's supply of gold, the basis of our financial system in relation to trade, is held by two countries; yet those two countries do only twenty-six per cent of the business of the world. Something is radically wrong, and it is the business of the world to address itself to the correction of that wrong; any local adjustment that might bring a little activity here and there will do us no good unless this great world problem is solved.

Now, in relation to the production of gold-and this to my mind is an appalling truth which is little appreciated by our people-we, the people of the British Empire, produce seventy per cent of the world's gold l (Applause.) Think o f it! Don't applaud; weep! Seventy percent of it is now in the possession of two other countries. Yet the people of the British Empire--Canada and South Africa are the main producers--have since 1919 produced £ 700,000,000 worth of gold, and it has all, or most of it, gone into the hands of others. England has proudly raised her head and paid her debts, but has bled herself white in doing so. Canada is struggling to meet her foreign obligations, and we can easily do it if given a chance, and we Canadians will do it, but in doing this we are bleeding ourselves white of this yellow metal. The world's gold production in 1930 was £83,000,000, or roughly, $400,000,000. For industries and arts, about $180,000,000 of gold is used annually, leaving for monetary purposes, $220,000,000; the leading experts of the world estimate that this is $100,000,000 short of the requirements of the financial gold standard systems of the world. In other words, it requires about a three per cent per annum increase" or $300,000,000 in gold, to maintain the gold standard. It is estimated that by 1940 we will have to make up a shortage of over $200,000,000 a year to meet the requirements for the support of our fiscal system on the gold standard basis. We are short now, and the shortage is increasing. The problem is confronting all those who are interested in the subject-traders, bankers, publicists, statesmen and businessmen; if we are going to continue on the gold standard basis how can we do it in the face of this shortage? I know there are those who will answer, "We have a fiduciary system; we have bills of exchange and acceptances, and all this." But bills of exchange and acceptances are only good as long as the country, and the business concerns upon which they are made, are in a healthy and stable condition; the moment a small percentage of those backing the paper that you are handling get into trouble, the public will lose confidence in that whole class of securities. From the foregoing figures it will be recognized that we are placing a most unusual strain on the gold supply of the world; and this, in turn, is resulting in an acute demand for gold. The very fact that there is a strain upon the gold that we possess, that it is inequitably distributed and that the production is below the requirements, is stimulating the demand; because, when there is fear of scarcity, there are those who, in a panicky state of mind, seek to secure more and more of the article supposed to be scarce, and in this case actually is scarce; the increased demand inspires the desire to hoard gold. A man in New York asked his banker for a million dollars in order that he might put it in a safety deposit bank, and thus make it useless to the country's trade and business. The present condition makes such countries as have little gold nervous and panicky; it destroys confidence in currency not strongly backed with gold. This, in turn, demoralizes trade, which is largely carried on through bills of exchange and acceptances.

I turn briefly to another study, that of the relation of silver in trade, particularly to trade in the Orient. China and India are the largest consumers of silver. During the last fifty-six years India has taken twenty-three percent of the world's production of silver. Do not think that if silver were remonetised China and India would immediately be selling you silver, or disposing of silver. They are the biggest consumers of silver, and in 1928 China and India took 229 million ounces of silver out of a world production of 250 million ounces--over eighty percent of the world's production. A word as to the value of silver; keep this thought in mind, and relate it, rightly or wrongly, to the fall in prices. From 1792 to 1837 the average price of silver was $1.38 per ounce; from 1837 to 1873 it was $1.29. Then the decline in the price of silver commenced and from 1873 to 1931 it dropped from $1.29 to 28 cents. When you consider that in the Orient, with two-thirds of the worlds population, the wealth of the people was not in insurance policies, and other various forms of security, but in silver-silver ornaments and silver hoardings,--you at once see that the wealth of the individual was cut in the ratio of $1.29 to 28 in fifty years. From 1492 to 1930--438 years--the ratio of silver production to gold was 14-1/2 to one. I would like to talk for an hour about this, because for fifty years this ratio has been 12-1/2 to one. There is no fear of gold outstripping the production of silver. After an exhaustive study I think there is no reason whatever to fear that the production of silver would be so great as to be beyond our capacity to absorb. Let it be remembered that silver has been the money of the Orient from time immemorial, and is the money of the Orient today, in spite of all other countries. The average price of silver for the last 140 years has been $1.25 per ounce; it is now reduced to about 28 cents per ounce, or about 22 per cent of its former value.

I spoke to you a moment ago of the difficulty of selling the productions of the West. I have told you of the need of goods in the Far East. But you are faced with this incontrovertible fact-that the purchasing power of the East has dropped in the ratio of from $1.25 down to 28 cents. This means that those silver countries have not been able to trade except within narrow limits, while the rest of the world-that is, Western Civilization -has piled up huge accumulations of unsaleable goods. The economic and social chaos of India and China is in a large measure attributable to the decline in the value of silver, to it being demonetized by the rest of the world, and to the consequent collapse of trade through inability to purchase goods abroad. The thought behind these expressions of mine is this-until we re-establish Eastern civilization, re-establish their economic conditions and stabilize and restore their capacity to buy, we are not going to solve the world's problems of depression and lack of trade. I am convinced that one is warranted in concluding:-First, that gold alone as a basis for domestic currency and international exchange settlements is insufficient; in the second place, that a fiduciary currency, while highly convenient for internal trade in times of peaceful stability, is subject to extreme fluctuations in periods of social or economic disturbance, and consequently cannot be considered as a reliable measure of values; and thirdly, that silver was a most vital element in trade structure, and still plays an important part in the activities of a large portion of the world's population.

From the dawn of human history, through the centuries when ancient Egypt, Greece and Rome flourished, through the centuries that have watched the stately progress of India and China, on through times of the more modern civilization of Spain, France, Britain and America, silver and gold, in perfect and unvarying harmony, have met all the intricate requirements of man's trade. These two imperishable metals, until they were divorced by the arbitrary action of Britain and Germany in 1873, formed the basis of a real and indestructible monetary value, preserving an almost uncanny stability in the ratio of one to the other throughout the long centuries. In that fateful year, 1873, Britain and Germany-later to be followed by France, Spain and Italy-denied to silver its ancient right of admittance to the nation's mints. Thus deprived of its use as money, it lost much of its value, and became a mere commodity.

I pause to say this; in the last year or two, when I have spoken of silver as a money, I have often heard the observation made, "Silver is but a commodity, and must reach its commodity value". My answer to that is to put gold on a commodity basis, and what will its value be? What gives gold its monetary value today? Not the filling of teeth, as Babson says; not arts and sciences; but because it has a different interest and position as the basis of money. When you deprive silver ore of its use as money you destroy the largest portion of its value for humanity; as a commodity silver fell, and will continue to fall if still valued as a commodity. New methods of trade settlement were introduced; fiduciary currencies established by the billions; the use of gold was restricted to bank reserves and international settlements, but the commerce of the world became more and more difficult; first in the Far East, and now over the arrogant nations of the gold standard-Europe and America-stalks the phantom of want, misery, and unemployment.

I cannot close without a word of hope and a note of optimism; I do not like to be too blue. What I have said was not with an idea of being depressing, but with an idea of placing before you what I believe to be one of the big problems of the world, quite overshadowing the solution of our internal problems. Restore silver to its ancient position as a companion, to gold, as the basis of a real and usable money, open the mints of the world to silver, and you will restore and stabilize the economic life of eastern civilization (applause); you will open to the nations -of western civilization those vast markets which, by the wanton action of 1873, have been gradually but surely closing to your trade. I have an abounding confidence in Canada. I am not today unmindful of our wealth of resources, the virility of our people and our ability to move out of this period of depression, whatever the rest of the world may do. I believe in the British Empire; and while there are those who are today severely critical of Great Britain because she went off the gold standard" I still believe in her; I have confidence in the good judgment and the wisdom of the leaders of the British Empire. (Hear, hear).

I do not like to deal in superlatives, and I do not think I am doing so now when I say that never in the history of the world have there been problems of such complexity as those which have confronted the leaders of Great Britain in the last ten years. The problems of the war were serious, but we were buoyed up with intense enthusiasm. Within the last ten years the world has seemed to be drifting to chaos. Above all, I believe in the elements of justice in trade and in finance, as well as in the dealings of man to man; to my mind it will be only when we of western civilization-I apply that general term to the countries of Europe and North America-seek to do justice in respect to those in the far Orient-whom we unquestionably deprived of a large portion of their wealth-that we will see the way clear for progress, stability and facility of trade one with the other. (Loud Applause).

HON. GEORGE S. HENRY, Premier of Ontario, expressed the high appreciation of the Club for the interesting and instructive address.