Gold Right Side Up

Because the world is round, what is right side up in the U. S. is upside down to China. Because of the geography of economics, gold miners, like Chinese, are upside down compared to other men. Most businessmen worry about what price they will get for their product, but in normal times gold miners never worry: since an ounce of gold is (normally) the "makings" of $20.67, the price they can get for their output never varies a penny. If other prices go up, other men are apt to profit, but for the gold miner that means only higher costs (no bigger income) and consequently smaller profits.

Last March when Franklin Roosevelt ruled that money was not gold, he broke the old equation; $20.67 would no longer buy an ounce of gold. He cheapened the dollar to make prices go up, to let businessmen profit. But he did not break the equation so far as gold miners were concerned. He would not let them sell their gold to anyone except the U. S. Government and the Government would pay only $20.67. Gold miners were out of luck--their costs mounted but the price of their product remained the same.

Last week Franklin Roosevelt blew the last traces of the old equation to bits. He told gold miners that they might sell their product to the world at large, get not $20.67 an ounce but the world price of around $30. In effect he turned the economics of gold mining right side up.

Since the ordinary way of selling gold is to take it to the Mint, the President--rather than force gold producers to establish elaborate machinery for a new commerce--ruled that henceforth the Treasury will take producers' gold, sell it abroad for them through the Federal Reserve banks, pay the producers the world price less costs of shipment and insurance. (The same arrangement was made in Canada when she restricted gold exports in 1931.)

Since gold producers will receive about $9 an ounce more than before, they will get about $22,500,000 more a year, calculating on the U. S. normal output of 2,500,000 ounces a year. But the U. S. output will tend to rise, for $9 an ounce is a 45% rise in price and the costs of gold mining have not risen 45% in the last six months. Gold miners will work at full speed to gather in the profits. Lower grade ore can profitably be worked. Result: larger gold output, more men employed in gold mining.

But economics have many ramifications and several other consequences will tend to follow, notably:

P: Industrial users of gold (jewelers, dentists) who have been getting gold from the Government at $20.67 an ounce will now have to pay the world price. Therefore the price of jewelry will go up, perhaps less jewelry will be sold, fewer jewelry makers employed.

P:. Exports of gold will add to the depleted gold stocks of the rest of the world, help to right the situation in which over one-third of the world's gold is locked up unused in U. S. vaults.

P: Exports of gold, no longer money but a commodity, will tend to give the U. S. a more favorable balance of trade, to boost the exchange value of the dollar, reverse the trend of dollar depreciation. (But the U. S. gold output is not large enough to make any great or sudden difference.)

P: By increasing the world supply of gold, U. S. gold exports will tend to raise the world price level, have a mild inflationary effect in other countries.

P: By tending to raise world prices and raise the exchange value of the dollar, exports of gold will also eventually tend to reduce the large profits which U. S. gold producers will make as a result of the new ruling.

Corollary to his order permitting export of newly mined gold, President Roosevelt issued at the same time new orders requiring gold hoarders to report their holdings and turn them in--penalty for failure $10,000 fine or ten years in prison. No startling success has been Attorney General Cummings' gold hunt to date. After starting out last June to recover "$500,000,000 of gold in hoarding," he admitted fortnight ago that he had located but $39,000,000. Yet sternly intent remains the President that gold hoarders shall not profit like gold miners by selling their gold abroad. Many a gold hoarder grumbled bitterly last week, demanding why he should be threatened with ten years in jail for having bought gold whereas if he had bought a gold mine the President would have handed him permission for a handsome profit.

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