“Gold: Relationship of Stock and Output” is a published letter to the editor of The Times, originally appearing on June 22, 1937, and supplied here in a 2022 republication with editorial notes. Hayek reports preliminary findings from an investigation by the Economic Research Division of the London School of Economics, responding to R. H. Brand’s articles on the contemporary “gold problem.” His central argument is that neither the quantity of monetary gold nor its annual production is meaningful in isolation: both must be measured against the monetary liabilities they support. This comparison qualifies fears of excessive gold abundance without dismissing the possibility of future inflationary pressure.
Hayek begins by specifying the institutional relationship that determines the appropriate denominator:
As Mr. Brand points out, under modern conditions practically all the monetary gold is used as reserve against central bank liabilities and paper money issues, and consequently the significance of changes in the stock of monetary gold and in the annual output of gold can only be judged by comparing them with the aggregate value of central bank liabilities and paper money circulation in the world.
The conceptual move is from absolute quantities to relative monetary backing. Hayek distinguishes the accumulated stock of gold from the annual flow of newly produced gold, but measures both against the same aggregate: central-bank sight deposits plus paper-money circulation across practically all countries. He also identifies an informational gap. Comparable figures had been supplied by Alexander Loveday to the League of Nations’ Gold Delegation seven or eight years earlier, but apparently had not been updated. The letter therefore offers preliminary empirical evidence rather than a comprehensive policy programme.
The table covers 1931–1936 and computes the ratios at current values. The worldwide monetary-gold stock rises from 53.5 percent of the specified liabilities in 1931 to 73.5 percent in 1936, with a decline between 1934 and 1935. Annual gold production increases from 1.97 percent to 3.31 percent of the same denominator. These figures establish a substantial increase, but Hayek resists treating that increase as sufficient evidence of an immediate monetary emergency:
It will be seen that while the increase in these percentages is very considerable, it is hardly such that with a reasonable distribution of gold it would have to be regarded as very alarming.
The qualification concerning distribution is crucial. The aggregate ratios describe a world monetary system whose reserves are unevenly located. They cannot, by themselves, establish whether particular monetary authorities face excessive inflows. Hayek’s restrained assessment is also conditional on future output: a substantial further increase in yearly production could materially change the situation. If the gold price were maintained, preventing dangerous credit inflation might then impose a burden that monetary authorities would find difficult to carry under existing arrangements. He identifies this potential conflict without recommending a particular remedy or specifying an inevitable transmission from additional gold to credit expansion.
The concluding comparison explains why contemporary observers might nevertheless perceive a much greater abundance:
The general impression of a much greater abundance of gold than that suggested by the above figures is, of course, due to the concentration of gold in a few countries, particularly the United States and Great Britain.
At the end of 1936, the combined gold stock of those two countries was approximately 95.5 percent of their corresponding central-bank sight liabilities and related circulation, while their net gold inflow during that year was roughly 14 percent of the same measure. The distinction between this national inflow and worldwide new production matters: concentration can intensify local monetary pressures beyond what global production figures suggest.
The letter thus proceeds from measurement, through a qualified assessment of worldwide abundance, to the geographical concentration that explains sharper national concerns. Its relevance lies in separating stock from output, global supply from national accumulation, and observed increases from conditional inflationary risks. The accompanying editorial notes identify Brand and Loveday and point to Hayek’s related “The Gold Problem”; they contextualize a letter whose substantive contribution remains a concise, evidence-based correction to the scale and interpretation of the gold debate.
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