may do something to repair the shattered economic conditions of the territories belonging to the former Austro-Hungarian Empire. This would offer the advantages which large economic units, with a common currency and traffic system, have over small economic units, and the further advantages which spring from union between countries adapted by natural conditions and historic development to supplement each other's needs.. Vienna. KARL SCHLESINGER. FURTHER OBSERVATIONS ON THE WORLD'S MONETARY PROBLEM HUMANITY has striven during thousands and thousands of years to make itself sovereign over surrounding nature, her forces as well as her materia. The result is what we call civilisation. In one case, however, humanity seems to have consented for ever to be the slave of a materia. That is in the case of gold. Of course, man has applied all his technical superiority to the work of winning the gold out of the stores of nature. In that respect he has nothing with which to reproach himself. But to the scantiness or abundance of the supply of gold thus given he has committed a commanding influence over what is called his economic life, that is, over the whole of his efforts to win the means for satisfying his needs. So late as the end of the nineteenth century, he has, e.g., for more than two decades allowed a scarcity of gold to retard his economic progress and keep down the productivity of his work. The critical point to which the war has brought the economy of the world makes it very natural that we should now earnestly ask ourselves if we really are willing further to submit to such a state of things. The decrease in the monetary demand for gold in comparison with the more and more abundant supply of paper money has brought the value of gold down to about half its prewar level, with the consequence that, as is seen in the United States, the prices of commodities in gold have risen to about double what they were before the war. Though this enhancement of prices has certainly been a most injurious process, the inverse process of bringing prices down again to their old level would probably be still more disastrous. The prospect of a long period of falling prices would kill all enterprise and impede that reconstruction of the world which is just now so very urgent. A rise in the value of gold would also, for many countries, make the restoration of the gold standard much more difficult, not to say impossible, and in an immense degree aggravate the already oppressive financial burdens of the Governments. It seems, then, natural enough that the world should now wish to prevent gold from rising again in value. This, so far as I can see, can only be done by some sort of international agreement to keep down the world's monetary demand for gold. A restoration of the use of gold as a circulating medium, and of the former requirements as to gold covering for the liabilities of the central banks, would without doubt mean a violent rise in the value of gold and a corresponding fall in the general price-level. These two sources of demand for gold must consequently be laid under a control to be internationally agreed upon. Perhaps, for instance, it would be found expedient to melt down all existing gold coins and stop all further coinage of gold. But this would not be enough. It will, without doubt, also prove necessary to put a limit to the demands of the central banks for more gold. The case of England is illustrative of this necessity. If the prescribed limitation of the issue of currency notes to a maximum of £320'6 millions is to be carried through, as the latest acquisitions of gold by the Bank of England seem to indicate, by aid of an increase in the note circulation of the bank, no rise in the internal value of English money will be achieved. But the necessity of acquiring more gold will strengthen the world's demand for this metal and help to enhance its value. If other countries should follow this example, this enhancement might become very embarrassing. But there are also other difficulties to be taken account of. The withdrawal of gold from circulation and the disappearance of all definite standards of gold-cover have in a most serious degree impaired the stability of the value of gold. If gold is to be used henceforth as a monetary standard, it is, therefore, necessary to take special measures for stabilising the value of the metal. As these measures, which would mainly consist in the establishing of appropriate and stable principles in regard to the gold-holdings of the central banks, naturally must be of an international character, the whole problem must be laid before an international conference, and this point has seemed to me to be one of the strongest grounds for the early summoning of such a conference. So far my views coincide, I think, pretty nearly with those set forth by Mr. Hawtrey in his very able and instructive article on "The Gold Standard" in the last issue of this JOURNAL. I wish, however, to call attention here to another difficulty which seems to have escaped the attention hitherto even of those who have become aware of the importance of the problem of stabilising the value of gold. This difficulty arises in connection with the production of the metal. If we have a stabilised monetary demand for gold, we must, of course, have an annual production of gold corresponding to the general rate of economic progress of the world, and, in addition, sufficient to cover the yearly waste of gold. This normal annual demand for gold amounted, during the period 1850-1910, on an average to about 3 per cent. of the total accumulated stock of gold in the world at the time. Of this sum 0'2 per cent. covered the loss of gold and 2.8 per cent was added to the world's stock of gold. Thus the stock of gold, and therefore, also, the annual addition to it, increased on an average by the yearly percentage of 28. Assuming the same rate of progress in the years before us, we should need at present an annual production of gold of about £100 millions, increasing in subsequent years at the rate of 2.8 per cent. yearly (cf. my Theoretische Sozialökonomie, Leipzig, 1919, § 54).1 In 1915 the world's production reached approximately this sum. But the rise of prices of commodities in terms of gold units has hampered the production and brought it down considerably below the figure attained in 1915. In the Transvaal the falling off of the production has not been very marked, but still a reduction from the maximum of £39.5 millions in 1916 to £35.8 millions in 1918 and a somewhat lower figure in 1919 has taken place. Much greater has been the decline in the gold production in the United States, where a maximum of 101 million dollars was reached in 1915, but where the production for 1918 was only 68 million dollars and for 1919 probably not more than 55 or 60 million dollars. The production is consequently at present not sufficient for a normal increase in the world's stock of gold. As the necessary annual production of gold would, under the assumed rate of progress, in ten years be £132 millions and in twenty years £174 millions, the danger of a quite insufficient supply of gold is much more imminent than seems to be generally recognised. Another factor is working in the same direction. Gold being the only commodity which has not risen in price while in countries with an effective gold standard other prices have been doubled and the general level of incomes has been raised in the same proportion, it is only natural that the demand for gold as a material for articles of luxury should have increased substantially. It is also 1 It is generally believed that the stability of the value of gold depends on the accumulated stock of gold being very large in comparison with each year's production. This fallacy is repeated in almost every text-book on the subject and even so acute a writer as Mr. Hawtrey yields to it. In reality, the accumulated stock should not be " very large," but simply 33 1/3 times as large as the annual production. known that the use of gold in the arts is growing rapidly. This consumption threatens, indeed, to absorb a large part of the diminished annual production of gold. What is left for monetary use will then be very insufficient for the necessary regular increase in the world's monetary stock of gold. This deficiency must result in a progressive scarcity of gold and a consequent continued rise in its value. This result could only be avoided if new goldfields were discovered and developed in the proportion necessary for a normal supply of gold. But leaving such a possibility out of consideration and assuming the production of gold to remain about constant, we have to face a growing scarcity of gold and a continued depression of prices. It will therefore probably be necessary not only now to prevent the monetary demand for gold from resuming its old dimensions, but also to regulate henceforth this demand with a view to reducing it gradually, as the growing scarcity of the supply of gold may require. If we further take into consideration the possibilities of changes in the conditions of gold-mining, we shall find that the scope for this regulation of the monetary demand for gold may easily be considerably widened. Thus the task may seem to involve great difficulties. But if we are not prepared to abolish at once and for ever the use of gold as a standard of value, we clearly must do something for stabilising the value of gold, and this is certainly not possible without a rational regulation of the monetary demand for gold. It is interesting to compare this expedient with the wellknown plan of Professor Irving Fisher for stabilising the dollar. Professor Fisher accepts the variability of the value of gold as a fact, and would stabilise the dollar by varying its gold content. This plan met with some difficulties as long as an actual circulation of gold coins had to be taken into account. But if we can suppose all gold in monetary use concentrated in the vaults of the central bank, it will only be necessary to regulate the price at which this bank buys or sells gold. If gold becomes abundant and sinks in value, the bank would only have to lower its price. of gold in a corresponding degree. In this way the monetary standard could be made independent of the variations in the value of gold and kept at a constant value in comparison with commodities. But in that case it is very difficult to understand why gold should not be dispensed with altogether for monetary purposes. It would have lost its function as a coin, as well as that of a standard of value. The latter function is fulfilled when the price of gold is fixed in the monetary unit of the country, the |