The reason of the gold embargo in Great Britain and in France, in the
United States and in Germany at this time is that it is of recognized
importance that there should be available a sufficient supply of gold
to safeguard the paper money issued by these nations. For unless the
paper currency is always freely exchangeable for gold the people would
be unwilling to receive the paper money on a par with gold. When the
paper money is not on a par with gold the people immediately would pay
their debts in terms of the cheaper currency, and every contract in
the country would be disturbed by the standard measure of value of
contracts being thus suddenly impaired. People in the United States,
for example, enter into millions of contracts measured in terms of
dollars and they do not say a gold dollar, unless it be in some formal
important contract, so that if the dollar in paper money should not
be equal in value to a dollar in gold, all those owing dollars in
such current business would meet their debts in the paper dollar. All
business people recognize the importance of maintaining the American
dollar at par in domestic transactions. It was a day of triumph
after the Civil War when the United States reached a point at which
“resumption of specie payment” occurred; a never-to-be-forgotten day in
America’s financial history. The American people would not submit for a
moment to have their paper money worth ninety-nine cents on the dollar;
they demand it shall be worth a hundred cents on the dollar, yet we are
faced with the astonishing condition that an American gold dollar in
New York, under embargo, is worth only 67 cents in Spain at 28.50 cents
per peseta normally 19.30 cents.
In other words, a gold dollar in New York worth sixty-seven cents in
Spain must have fifty per cent. added to it to buy one hundred cents’
worth of Spanish oil in Barcelona. It takes three such gold dollars in
New York to be worth two gold dollars by weight in Spain.