FOREIGN TRADE: Vanishing Exchange

Last week some $500,000,000 of Allied gold arrived in Manhattan. It was unloaded from 120-odd trucks behind machine guns at the Federal Reserve Bank entrance on Maiden Lane, carried into subterranean vaults whose outer flanks are lapped by seepage of the sea. Like a cloudburst over the cataract that has brought $12,000,000,000 of gold to the U. S. since 1934, this $500,000,000 raised the total monetary gold owned or held in the U. S. to around $2 1, 000,000,000, of which over $19,000,000,0001s U. S. Government-owned. This is over 60% of all the monetary gold in the world.

The fact that the U. S. has a"favorable" export balance and will buy gold from all comers at $35 an ounce was not the main attraction for last week's ship ments. Like most of the gold shipped here in the past six years (probably three-fourths of which has been capital, not payment for U. S. exports), its motive was fright. Nevertheless, financial columns raised anew the gloomy question: what good is all this gold to the U. S.? Will it have any post-war value except to dentists? Nobody knew. Some pointed out that in almost any post-war world billions of expatriated gold would go home again.

But many noted that the classical theory of gold's function — a balance wheel for international trade — was, for the time be ing, becoming more classical every day.

Most disturbing facts about U. S. gold policy (now under review by Senator Wag ner's Banking & Currency Committee) are two: 1) since the gold influx turns up in the Federal Reserve in the form of certificates that are the country's credit base, it creates enormous excess reserves, which help to lower interest rates, set the stage for credit inflation; 2) it enables foreign capitalists and importers to cut themselves a slice of our profits and goods, paying for them in an inedible metal of which we already have too much. In lukewarm defense of U. S. gold-buying, realistic bankers, while pointing out that gold is still the only universal medium of exchange, grant that it has also become a weapon of U. S. foreign policy. For the U. S. to alter its gold policy now might not hurt the U. S., but would throw international money markets into a panic, especially derange the purchasing program of the Allies, who produce over half (about $700,000,000 last year) of the world's new gold. Said this month's bulletin of the National City Bank: "Apparently we have a bear by the tail and cannot let go."

More like the simple faith of a lyth-Century mercantilist'is Secretary Morgenthau's defense of gold. Last month he called it "the safest physical asset in the world." But even he admitted a doubt. Picturing a Nazified economic area in which "international trade and finance may assume the character of domestic trade," he said: ". . . It might well be that gold would no longer be needed. But under those circumstances life would be so different that the possible loss in the value of gold would, I am sure, be the least of our troubles."