The watchman and southron. [volume] (Sumter, S.C.) 1881-1930, 1921-12-10


created. The liquidity. and even
the ultimate solvency Of smaller
banks have thereby been impaired
to such an extent that severe
measures became necessary. Fur
ther restrictions cf credit have fol-
owed with the result that prices
have been forced down still more
and fresh amounts Of frozen cred
it" have been created. The pro-
cess Of deflation has evidently, in
this case, led to vicious circle
from which it seems extremely diff
fcult to escape.
The monetary policy Of the
United States has had an import
ant bearing on the treatment of the
corresponding problems in other
countries anxious to keep up their
currency at pre-War parity with
the dollar, or at any rate not to let
it suffer a further depreciation in
comparison with the dollar.
"Such countries have undoubted-
ly been driven, by the action of the
United States, to proceed further
on the way of deflation than they
would have deemed wise or eXpe-
dient had they only had to look
upon the matter as an internal
monetary problem. The incessant
rise in the purchasing power Of
the dollar has, however, made
vain every effort of other countries
to keep up their monetary stand
ards in relation to the dollar. This
is particularly conspicuous in the
case Of England.
Before entering upon discus
sion of the course that should be
taken in regard to the programme
Of defation it is necessary to set
out clearly what the process of de-
hation actually means and what are
its practical effects.
'Defation is, shortly, a process
by which the internal value Of the
monetary unit is increased. This
means a deliberate raising of the
purchasing power Of this unit in
regard to commodities and SER
vices-i. e., q general and uniform
reduction of prices, wages, and sal
aries as measured in terms of the
monetary unit. Even this simple
observation is important if we are
to clear UP the current ideas on
this question, for dehation has un-
doubtedly gained part Of it's pop
ularity from the widespread be-
lief that it meant reduction Of
expenses without a corresponding
reduction Of incomes.
The means Of effecting such a
rise in the value of the monetary
unit is a restriction in the supply
Of the means of payment and a
consequent reduction of the nom
inal purchasing power of the pub
lie. To this end there are two
measures at our disposal, and III
present circumstances both must be
applied simultaneously. The first
and the most general is a restric-
ton Of credit. involving a curtail-
nent Of the amounts Of loans and
a more stringent selection be-
tween the different demands for
loans.
But the principal instrument of
sueha policy is an abnormally high
bank rate, calculated to raise 9TH
er rates Of interest corresponding
! ly above what the real scarcity Of
capital would require, and thus to
place an effective brake on all
| forms Of demand for credit. By
combining such restriction of cred
it. with a high degree TO saving, a
considerable reduction Of the ac-
tual purchasing power Of the pub
lie may be effected. The second
measure consists in raising, by tax
alton, over and above what public
expenditure would require, a sum
of money to be used for cancella-
ton Of a part Of the means of pay
ment Of the community.
Theoretically, it is no doubt
possible to bring down prices by
these means as much as need be.
and to raise the purchasing power
Of the unit Of money almost in
definitely. But. unfortunately. the
process is incidentally attended by
| some rather diSag agreeable effects.
! Indeed, We haze to take care that
we do not get into position in
which we have to admit that,
though the cure was a success, the
patient succumbcd. The warnings
enunciated in the first memoran-
dun in regard to the dangers of a
policy Of dehation have shown
themselves during the past year to
be only too we'll IoGnGed.
The first and most obvious af-
feet Of such a policy is on enter
prise and production. Artificially
increased difficulties in the way OF
obtaining necessary credit accom-
modation. combined with an arti-
ficially increased burden of taxa
ton, would in themselves have q
dangerously depressing influence or
business activity. But the end
which is expected to be attained
by these means is even more dis
astrous in its effects, fc- the pros
pect Of long period of falling
prices is most likely to kill indus
trial enterprise and the very spirit
Of economic progress.
The experience which the Unit
ed States and some European
countries have gained in this re-
spect during the last year is indeed
so serious, and SO valuable for ev-
erybody desirous to learn, that We
should do we'll to pay it the very
closest attention. This experience