Gold, Debt and Prices

Abstract

Because of the recent appearance of an American edition of F.W. Hirst's "Money: Gold, Silver and Paper," the author would like to comment upon a quotation he has included, both in the English and American editions, from a letter the author wrote him in November, 1932. The author said: "What one might call the price of gold, that is, the amount of goods that must be given up to get gold, is very high. That cannot be because of any lack in the supply of gold, because the supply is very large, indeed abnormally large. It must therefore be due to an enlarged demand for gold. Is there such a demand; and if so, what precisely is its cause and nature? I cannot see that there is any such demand for gold, or representatives of gold, for use as a medium of exchange as would explain this high "price" of gold. If a man with cotton goods to sell wants an automobile, he must of course give up a large amount of goods for a given amount of gold, but on the other hand he needs much less gold than he used to need to buy the automobile. His desire to make a sale of one kind of goods in order to make a purchase of another kind does not account for the enormous demand that must evidently exist to account for the large amount of goods universally required to get gold. Where then does the demand come from? It comes from debtors who, of course, cannot pay their debts with any commodity but gold, and who therefore seek gold persistently, bidding for it higher and higher in order to avoid defaults, bankruptcies, and foreclosures."