IF ENGLAND SUSPENDS GOLD PAYMENTS F BY THEODORE H. PRICE OLLOWING this article there is reprinted an editorial from the London "Statist" of September 16 which conveys a very definite intimation that England may find it necessary to suspend gold payments if the war lasts another year. The Statist" is one of the most important financial papers in England. Its editor, Sir George Paish, was knighted for his services to his Government, and visited this country early in the war as adviser to the British Treasury. It was therefore natural that the editorial in question should attract great attention here as soon as it was read. Knowing what we do of British censorship, it hardly seemed possible that such a statement could have been published without the sanction of the British Government, and, although an unsigned cable in the New York 66 Evening Post" of October 7 says that "the article was apparently the production of a political or financial crank and gave grave offense to the Government," it has not yet been officially disavowed. Meantime, in its succeeding issue of September 23, the "Statist" itself says that "it is a very common fallacy to suppose that during a great war the one desire of a country is to conceal unfavorable developments and dwell entirely upon the favorable points. The reverse is often the case, especially with regard to the financial aspects of the situation." Then, after recounting British success in financing the war thus far, it concludes: "We must once again add that to those who take a long view of the situation with the possibility of a protracted war there is still no justification for a relaxation of caution whether as regards monetary conditions, in London or the question of private expenditure." All of which would seem to indicate that in British finance as in British politics there are two parties- Conservative and Radicalor prudent and rash," as they have been recently differentiated. F. W. Hirst, lately editor of the London "Economist," undoubtedly belonged to the party that counseled conservatism or prudence in matters of finance, and it is generally supposed that he resigned his editorship because his cautionary and somewhat pessimistic articles were unpopular. Vigorous dissent from the views expressed by the "Statist" is not, therefore, surprising, but they justify nevertheless a careful study of the effect upon America of a possible suspension of gold payments in Great Britain. In order to understand the gold question fully, if indeed that be possible, it is necessary to get a few basic facts definitely in our minds. The first is that throughout the civilized world gold has a value that is fixed by law. This is to say that certain weights of gold are exchangeable for certain gold coins that are legal tenders in payment of all debts. The parities between the weights of these coins. and the United States dollar, together with the rates of foreign exchange in New York on October 9, are as follows: The second is that the world's entire supply of gold in coins or bars in circulation or in banks or government treasuries (not including gold in jewelry or works of art) is estimated at the equivalent in weight and value of about eight billion dollars. Figuring at 25.8 grains to the dollar and 4,900 grains to the cubic inch, this quantity of gold would be contained in a sixty-foot cube. There are many churches and small public buildings or rooms in New York or elsewhere that would hold all of it very comfortably. The third is the distribution of this gold at the present time, which is about as follows: Great Britain and Colonies France.. Russia. Italy.. Japan.. $1,000,000,000 in banks and circulation 800,000,000 in Bank of France 750,000,000 in Imperial Bank 200,000,000 in the National Bank 135,000,000 in banks and Government Treasury 800,000,000 in Government banks 2,500,000,000 in banks, Treasury, and circulation 500,000,000 in banks and circulation 715,000,000 $8,000,000,000 These figures have been compiled from various sources, and, though necessarily an approximation, are believed to be about correct. It will thus be seen that the United States holds almost one-third of the world's gold supply and nearly as much as all the Allies together. The "Wall Street Journal " estimated the total debt of the warring nations August 1, 1916, at $66,638,000,000, distributed as follows: Great Britain France.. Russia.. Italy... Pre-War Debt Debt. Aug. 1, 1916. $3,485,000,000 $15,106,000,000 6,607,000,000 $14,966,000,000 4,537,000,000 10,363,000,000 2,836,000,000 4,301,000,000 Total for Allies.. ... $17,465,000,000 $44,736,000,000 (Empire and Germany states)..... Austria-Hungary Turkey. ..... Central Powers. Grand total....... 5,198,000,000 14,291,000,000 3,970,000,000 6,757,500,000 854,000,000 640,000,000 $9,808,000,000 $21,902,500,000 $27,273,000,000 $66,638,000,000 I Includes advances from Bank of France. As Germany has no external debt and is buying little or nothing outside the Empire, we may eliminate her from our calculations and consider two questions only. A. Can the Allies support a debt and outstanding paper circulation amounting now to over $50,000,000,000 if they part with any more of their gold? B. What will be the effect in this country of a further influx of gold? The answer to question A has been supplied by the "Statist." An indeterminate continuation of the war for another year would probably make it necessary for all the Allies formally to suspend gold payments. All of them except England have informally suspended already, and even in England it is now considered unpatriotic to demand gold for bank notes. In the event of such a formal suspension it is altogether probable that trading in gold as a commodity would be prohibited throughout the territory under the dominion of the Entente Alliance, and the depreciation of the paper currencies in circulation would be chiefly reflected in the rates of exchange at which bills payable in those currencies could be sold in New York. As will be seen from the preceding table of parities, these rates of exchange already show a depreciation ranging from about forty-two per cent on the Russian ruble to two and one-quarter per cent on the pound sterling, and any further decline would probably be slow, for there is a stubborn faith here in the integrity and financial strength of England and her allies. Anglo-French bonds might also sell lower, for, although they are specifically payable in gold, faith in the ability of the debtor nations to redeem this promise would be somewhat shaken. The answer to question Bis, however, more difficult. It is plain that if England and the other Allies formally suspended gold payments, they would do so only that they might be entirely free to use their gold to buy what they needed in neutral countries. The balance of trade in our favor for the calendar year 1916 will be about $2,500,000,000. If the war continues through 1917 and the balance of trade is as large as in 1916, we may have to take another billion of gold in settlement for it. In that case we should own nearly half the world's gold supply, and its value will depend very largely upon our belief in the ultimate ability and willingness of Europe to re-establish gold as a standard of value. If this belief persists and is justified, we shall be but little the worse for a flood of gold that will commence to subside when the war ends. It is even doubtful whether credits will be expanded and speculation stimulated, as many expect, for our bankers are now too much alive to the peril of such a development to permit it. It is, however, thinkable that England and her allies, controlling as they will nearly half the world's population and territory, might find it practicable to eliminate a troublesome question entirely and get along permanently with an "inter-ally paper currency supported solely by their credit and irredeemable in gold. In that case they could pay their debts to us and to others in gold which would be worthless to them for any other purpose, 1916 IF ENGLAND SUSPENDS GOLD PAYMENTS and we should be poorer rather than richer Such an idea may seem grotesque and That the entire superstructure of the world's credit should be imposed upon a sixty-foot cube of gold is an absurdity that is being made gradually apparent by the war. If it shall become evident that the joint guarantee of the Allies can support a currency 465 that is redeemable in goods but not in gold, it is conceivable that they will adopt it. Their financial problems would be immensely simplified by such action. Therefore it is with the economic discovery that may be made if England suspends gold payments that we should concern ourselves rather than with the prospective increase in our gold supply. If after the war the world goes on as it has in the past, we shall not be much affected. If, on the other hand, the intrinsic value or valuelessness of gold pound for pound as compared with other metals should be revealed, our problem will be a difficult one. THE GOLD From the London "Statist" of September 16, 1916 The disarrangement of the foreign exchanges by the war and the difficulties experienced in paying gold are naturally exciting unusual interest in regard to what is called the gold question. It is quite reasonable that there should be much discussion and even some anxiety. But the matter is not of the supreme importance which many of those who are engaged in the discussion seem ignorantly to think. It is, of course, the duty of a government, a company, a firm, and an individual to fulfill all contracts entered into. And in the time in which we live nations, particularly the more forward nations, contract to pay all their debts in gold. It would be an act of dishonesty to refuse to do so if the ability existed; and, of course, every honorable person, or corporate body, desires to put off as long as possible a forced infraction of a contract. But the old proverb applies in regard to gold just as much as in regard to everything else: "Necessity has no laws." If a contract cannot be maintained, there is no option but to let it go by the board. The present state of things has arisen out of the enormous cost of the war in which so many nations are engaged. As we pointed out last week, there are no fewer than nine Governments on the side of the Entente Alliance, while there are four on the enemies' side, making no fewer than thirteen Governments belligerent at the present moment. The scale upon which Germany organized her naval and military forces has compelled the other nations to follow suit. And the result is that the cost of the war surpasses anything that even the wildest imagination fancied before 1914. Taking the United Kingdom alone, we are spending at the present time, as our readers know, something over five millions sterling every day in the week, Sundays and holidays included. And the other organized parts of the British Empire are spending largely in addition. Now it is obvious that to find money to pay more than five millions a day is an exceedingly difficult thing, and that it grows more difficult every day the conflict lasts. All the other Governments, whether allies or adversaries, suspended specie payment when the war began; but the British Government, believing itself to be able to avoid doing so, has succeeded in avoiding it up to the present. It increased taxation heavily, but it very soon became convinced that taxation, however increased, could not provide the means to carry on the war. Therefore it has raised very large sums at home by borrowing in almost every conceivable form. Still, it found that many of its allies were so circumstanced that they could not provide themselves with all the munitions they required, and therefore the British Government undertook to act for those co-operators, which naturally increased its own expenditure. It has, in fact, had to lend to some of its allies and to some of the daughter countries. In addition, all its allies have been convinced by experience that it is cheaper for one single Power to buy than for all of them to go into the market at the same time and bid against one another. Therefore the British Govern ment has undertaken to buy a great many things for its allies and the daughter countries; and, lastly, inasmuch as the merchant shipping of the British Empire is about half the whole merchant shipping of the world, this country has had to provide means of conveyance for not only itself and the daughter countries, but for the allies as well. The burden, therefore, that has been thrown upon the British Government is very great, and the cost, as already said, has now mounted up to over five millions sterling a day. To meet an outlay on this gigantic scale our Government has not only borrowed at home very large sums, but it has borrowed in New York likewise. To do so, it has found it necessary to pledge collateral securities, and at the present moment it is asking its subjects to either sell to it or to lend to it such securities as have a fairly good market in New York, of course intending to raise there a further loan. And All this is done to provide the means of paying gold for the purchases made. yet everybody knows at home and abroad that the quantity of gold in the world is not sufficient to pay for all the commodities of every kind that the various belligerent countries require. In all past times a great war lasting for a long time has led to the suspension of specie payments. Our allies, as well as our enemies, suspended such payments at the beginning of the present conflict. We ourselves when we entered into the war against revolutionary France refused for four whole years to suspend specie payments. But in 1797 we had to do so, and we did not find it possible completely to resume until 1820. Again, the United States Government, to put down the secession of the South, had to suspend specie payments, and was not able to resume until 1879. Therefore we see that everywhere outside of England suspension of specie payments has occurred when a great war has lasted long. The question, then, with which the people of the United Kingdom are confronted is, ought we to do as we did in the great war against revolutionary France, suspend specie payments, or ought we to show that we are rich enough and ingenious enough to do what no other nation ever has done hitherto and go on paying in gold till peace returns? The answer, we take it, to the question is, "That depends upon the length of the war." If the Great General Staffs of all the Entente Allies can reasonably assure the British Government that the war will not last much more than, say, six or eight months, the Government clearly ought to exhaust its ingenuity before suspending specie payments. On the other hand, if there are reasonable grounds for thinking that the war will last throughout next year, and possibly longer, it seems safe to predict that specie payments cannot be maintained to the end. If any reader asks, granting that all honorable persons desire to fulfill their contracts in the spirit as well as in the letter, and granting further that common sense dictates that after a certain time if experience convinces us that specie payments cannot be maintained, will very grave and injurious consequences follow ? The consequences will be simply that British credit will decline; that the value of the pound will not remain what it has been; that it will fall. In plain English, if we cannot pay in gold we shall have to pay in either Bank of England notes, or in Government notes, or in some kind of undertaking by the Government that the payments shall be met. If that were to happen, the Bank of England note or the Government note would not rank as high as the sovereign, and, consequently, the prices of everything we should buy abroad would rise. The real economic difference, then, between maintaining specie payments and suspending them is that there will be a general rise in the price of everything we buy abroad, and naturally prices at home will follow. The cost of the war, then, will be increased. But there the injury will stop. It may be said But if we shall have broken our contracts. we are compelled to do so, the world will see we have done it, not through dishonesty, but under compulsion, and the world knows that the British Empire is rich enough and powerful enough to resume specie payments very soon after peace returns. Recollect that about two-thirds of the whole gold supply of the world comes from mines within the British Empire. Therefore we have the means of resuming specie payments if we are forced to suspend them. But whether we shall be forced depends entirely upon the length of time the war lasts. There is not enough of gold in the world to go round when expenditure is on the gigantic scale of the present time. And when so large a proportion of the male population is engaged in war, industry is not kept at the level that would enable a maintenance of specie payments, supposing the war lasts for a longer time than now seems probable. E DOES THE EPISCOPAL CHURCH HOLD THAT IT IS NEARER The statement in your issue of the 27th of September from the pen of the Rev. Dr. William T. Manning, "that the Episcopal Church holds that it is nearer to Rome and to Constantinople than to the Protestant Communions," cannot be allowed to pass without challenge. Such an opinion would have been repudiated by the great body of the Elizabethan divines, by the Caroline divines (commonly called the Anglo-Catholic divines), and generally by the bishops and leading theologians of the Anglican Church down to the latter part of the last century. Columns of your space could be filled with quotations justifying this statement. I do not deny that since the time of John Henry Newman there are some among us (I trust they are still few) who would accept Dr. Manning's statement. "The one simple fact" which in Dr. Manning's opinion proves this beyond all question, namely, that the Episcopal Church receives a priest from Rome or from Constantinople without reordination, while it requires that any Protestant minister coming to us must be reordained, means that no man can be a minister in this Church without episcopal ordination; it emphasizes the importance of the historic episcopate-it does not mean that no ministry but an episcopal ministry has any validity. So illustrious a representative of the Anglican Church as Bishop Harold Browne (himself a High Churchman) emphatically declares that the Church of England has never taken that ground. Allow me to quote a passage from the writings of one of the ablest and most learned of our American bishops, the Rt. Rev. John Henry Hopkins, D.D., Bishop of Vermont, who in his day was reckoned a very High Churchman. In 1843 and 1844 Bishop Hopkins published two letters to the whole Episcopal Church on the subject of "The Novelties which Disturb Our Peace." One of these novelties was the systematic refusal of the term "Church" to the various orthodox communities of our non-episcopal brethren, of which he says: "In the first place, if I understand the doctrine of the Church, episcopacy is not of its essence but only of its order. Secondly, those portions of Christendom which retain the fundamental verities of the Christian faith are entitled for the faith's sake to be called 'churches,' although they have lost the Apostolic order of the ministry." Again, he says, alluding to the New Oxford theology: "Surely then, beloved brethren, I cannot err in pronouncing this new system of ecclesiastical polity to be utterly foreign to the principles and hostile to the spirit of the English Reformation. Set the Church of Rome up on the one side, and the Church of Luther, Zuinglius, or Calvin on the other, and let our martyred Reformers be supposed to answer the question: On which side is the Church of Christ which you hold to be the purest, the safest, and best entitled to the name of his spouse and his body, and with which you prefer to cast in your lot if you were compelled to choose between them? And is it possible for any Protestant Episcopalian to doubt what would be the reply?" In another place the Bishop says: "Why did our Reformers attack every other corruption, the idolatrous worship of the Virgin and the saints, of relics, images, crosses; the priestly tribunal of auricular confession, absolution, and penance; works of supererogation, pardons, and indulgences; clerical celibacy, with its attendant licentiousness; the doctrine of the sacraments, with their perilous principle of ex epere operato; the communion of one kind, with its correlative impieties in the Sacrament of the Altar ?" Perhaps Dr. Manning, being an Englishman, may not be familar with the important work of Bishop Hopkins from which I have quoted, but he ought to know that there is no ground in the writings, let us say, of the Anglo-Catholic divines for the statement which he has made "that the Episcopal Church is nearer to Rome and to Constantinople than to the Protestant Communions." He quotes Archbishop Bramhall; let me remind him that that prelate said, "Episcopal divines do not deny those churches to be true churches wherein salvation may be had," referring to the Protestant Communions. Let me remind him again that the famous Bishop Andrewes, one of the Caroline divines, said, "He is blind who does not see churches consisting without it" (meaning episcopacy). Let me remind him once more of the Fiftyfifth Canon of the Church of England, which requires the clergy to "to pray for the Churches of England, Scotland, and Ireland as parts of Christ's Holy Catholic Church, which is dispersed throughout the world." Does that look as if the Church of England considers herself nearer to the Church of Rome than to the Protestant Communions? Finally, allow me to quote the learned Bishop Hall, of the reign of Charles I, who speaks of the Protestant churches as the Church of England's dearest sisters abroad," and exclaims: "Blessed be God, there is no difference in any essential matter between the Church of England and her sisters of the Reformation !" If there is any considerable number of our clergy or people who agree with Dr. Manning's statement, allow me to say that they are cherishing an opinion which is of recent origin and is in conflict with the whole spirit of the PrayerBook and the recorded opinions of the great body of English divines even to the beginning of the present century. New York. RANDOLPH H. MCKIM. |