Before a joint committee of New York State law-makers engaged in revising New York’s public utility laws, appeared last week Professor Irving Fisher, Yale economist. Even as many a Yale student has replied “I don’t know” to questions asked by Professor Fisher, so Professor Fisher replied “I don’t know” to questions asked by the committee’s counsel. Col. William Joseph (“Wild Bill”) Donovan, onetime (1924-25) U. S. Assistant Attorney-General. Finally Professor Fisher admitted that he was unprepared, had not made any particular study of Public Utilities. Loath to take a zero for the day’s recitation, however, Professor Fisher offered a vast prophecy which, if valid, bears weightily on public utilities and all other forms of business.
The theme of the lecture was a favorite Fisher topic, Gold.*
Said he: “The U. S. is headed toward a period of business depression, probably beginning within the next two years, which may exceed that which preceded the War. . . . The only thing that will save us is a new gold policy or the discovery of a new process or additional gold fields. If the fall [of gold production] is not prevented by design or accident we shall throttle business, wringing out all profits and experiencing all the evils of deflation.”
Prophecy is no new business for Professor Fisher, whose last previous prophetic utterance, however, proved false. Last fall Professor Fisher was prominent among the bull economists who saw no evil in the bull market. He scoffed at bearish forebodings, and even after the bull market had broken he compared its collapse to the failure of a fundamentally sound bank, wrecked only by a psychological “run” of frightened depositors. Professor Fisher’s imperfections as clairvoyant were quickly recalled by a rival prophet, Roger Ward Babson of Babson Park, Mass., who said: “It should be recognized that he [Fisher] has changed his position from where he stood when he criticized me in my bearish forecast in … September 1929. Then he was distinctly bullish on both the stock market and business.” Prophet Babson added: “I am not especially troubled about the available supply of gold . . . only one of the many factors which bear upon the business situation.”
Gold Basis. As everyone knows, a government issuing currency must secure that currency with coin-of-the-realm, now almost universally gold. When the amount of gold is diminished, a nation must either withdraw from circulation a certain amount of currency, thus increasing the purchasing power of the money unit and sending commodity prices down, or it must lower the value of the currency in circulation and watch prices soar. Obviously, the same effect would be attained by keeping static the world’s supply of gold while its trade and credit structure is permitted to grow. Professor Fisher’s gloomy forecast was not bred of fear that the present gold reserve may vanish under the wand of some malevolent magician. What he fears is that the supply cannot be increased rapidly enough to bear the weight of the world’s daily growing Trade and Credit, so deep and scant are the existing veins of ore, so great the diversion of the metal to industrial uses. Gold Supply. If his fears are well founded a condition would prevail through out the world which now exists locally when a nation’s stock of gold is depleted by sale or transfer. Such local conditions do not worry bankers or economists if the commercial structure of the temporarily suffering nation is sound. But bankers and economists are worried about the world’s gold supply. They believe that it should increase at the rate of 3% per annum, a rate which has not been attained in the last decade. In 1928 the gold production of the world was valued at $409,000,000. Of this amount the Transvaal African Fields produced $214,000,000, and remain as largest source of gold supply. Australian gold fields are almost exhausted. U. S. pro duction has fallen steadily (from $101,000,000 in 1915 to $45,000,000 in 1928). Canadian production is increasing ($38,000,000 in 1928) and Russia has, since 1923, resumed its pre-War production of about $25,000,000. But metallurgists agree that the discovery of extensive new gold deposits (as in California in 1818) is unlikely and the production from such lode deposits as in the Transvaal becomes more expensive in proportion to the depth reached.
Silver. While economists worried about the future of gold, silvermen worried about the present of silver—gold’s obvious alternative (vide the late great William Jennings Bryan) as money standard. At 43 7/8¢ an ounce, silver last week reached its lowest all-time price, and the demand for silver has steadily decreased. England has put more alloy and less silver in its silver money. France and Belgium have demonetized silver. India (which, with China, is largest silver user) is going over to the gold standard, has been selling silver in large quantities to get rid of its large silver reserve. In Mexico and in China (two silver countries) cheap silver and depreciated currency have produced a critical situation. In Shanghai last week Sze Chun-Yu, nephew of Alfred Sze, Chinese Minister to England and onetime Chinese Minister to the U. S., committed suicide. Mexico has suffered not only from the decline of its dollar but also from the fact that silver-mining is its greatest industry and an outstanding source of national income.
Ways Out. Suggested remedies to the possible gold shortage are: 1) substitution of some other precious metal (e. g. silver) for gold as standard; 2) a variation in the weight of the gold dollar; 3) establishment of an international commission for the regulation of gold production and distribution.
* As one solution to the difficulties caused by the dollar’s variable purchasing power, Professor Fisher has long publicized a plan which will make the dollar’s purchasing power fixed, the dollar’s gold content variable. The essence of this scheme is for the Government to keep an exhaustive index of all commodity prices and to change continually the amount of gold for which a dollar may be redeemed, basing this upon the index’s fluctuations.
More Must-Reads from TIME
- L.A. Fires Show Reality of 1.5°C of Warming
- Home Losses From L.A. Fires Hasten ‘An Uninsurable Future’
- The Women Refusing to Participate in Trump’s Economy
- Bad Bunny On Heartbreak and New Album
- How to Dress Warmly for Cold Weather
- We’re Lucky to Have Been Alive in the Age of David Lynch
- The Motivational Trick That Makes You Exercise Harder
- Column: No One Won The War in Gaza
Contact us at letters@time.com