Fortune Magazine (1931): The Great Gold Argument

Editor's note: Every week, Fortune.com publishes a favorite story from our magazine archives. This article from February 1931 explores a topic that's still hotly debated today -- what is the true value of gold? Back then the U.S. economy was in the throes of what would become known as the Great Depression, gold was the monetary standard, and it traded for just over $20 an ounce.
In two parts, hereunder. Part one, a free-hand sketch of the gold-money-credit machine which links gold dollars to doughnuts. Part two, bold summaries on what's said to be the matter with that mechanism. The whole, a primer designed to give the lay executive a running familiarity with the most bitterly discussed economic question of the day.

FORTUNE -- In the vaults of the Bank of England (Threadneedle Street, London), men are piling gold on a truck. The gold they lift has been bought and paid for by a foreign country and is about to be delivered. In the factory of Henry Ford (Dearborn, Michigan), men are tightening bolts on a moving automobile chassis. The car they are building will presently roll away and be offered for sale. Does every bar which is lifted from the vaults, 4,000 miles away, change the value of "the automobile Henry Ford's men are bolting together? If so, how? Conversely, will every new Ford which rolls from the line change the value of those so-accurately weighed bars under Threadneedle Street? FORTUNE here presents a working drawing of the machine which links them, an inconceivably complex machine in the study of which a known fact is something to cling to in a whirling eddy of hypotheses, trends, theories, nebulous generalizations, and conflicting interpretations. For the lamentable fact is that the engineers who watch over this machine disagree on its nature, about how to operate it, about what, if anything, is the matter with it, and, if it is malfunctioning, about how to fix it.

This much is certain: the commodities of the world are priced, first, in the money of the country in which they are produced. The nations of the civilized world (China is practically the only exception) relate their moneys to gold. Thus in the last analysis, according to the laws of today, gold is the common denominator in whose terms everything the world produces may be measured. Mechanically this involves:

I.-The physical existence of a supply of gold somewhere in the world.

II.-The issuance of currency against this supply of gold, extending and facilitating its everyday use.

III.-The establishment of credit beyond the limits imposed by any strict ratio of gold to currency.

The fundamental facts behind the ideas of currency and credit are (1) that there isn't, today, enough gold in the world for the everyday use, at current prices, of 1,906,000,000 people; and (2) that even if there were, the metal would be too unhandy.

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