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The Ambassador in China (Gauss) to the Secretary of State
[Received 5:17 p.m.]
1858. Embassy’s 1847, October 2 and 1800, September 25.65 Minister of Economic Affairs66 confidentially affirms that Government has not yet reached decision as to utilization of gold. He is privately doubtful whether sale here will materially retard inflation because (1) comparatively few Chinese will be able to purchase even a small amount and (2) even considerable sale would not result in sufficient reduction in currency circulation to be greatly beneficial, especially as the currency issue will necessarily continue to expand by over 3 billion per month. He believes, however, that gold could be used to some extent to stabilize commodity prices by emphasizing it for Government purchase of commodities to be sold at fixed prices.
In general he appeared to envisage no solution for China’s inflation problem. He said the tax system, especially collection in kind, was ineffective because of corruption on the part of poorly paid tax officials and was unbearable on the part of the people as evidenced by the result and peasant revolts against it. He said Chiang Kai-shek’s optimistic utterances before the CEC (Embassy’s 1693, September 1267) were made because Chiang wanted to encourage the people and also because the Generalissimo “liked to be an economist.” He said it would be impossible to predict how long the disheartening situation could continue but he thought a bad crisis was unlikely within a year or a year and a half.