Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-08-14
REGULATED CREDIT
SUPPLY ESSENTIAL
World Has Turned to Gold
Standard as Basis of
Monetary System.
BY JOHN F. SINCLAIR.

b1 JOnN r. SlNSLAAns
Special Dispatch to The Star.
NEW YORK. August 14.-Gold is the
foundation stone of credit, and credit
is the basis of modern business. well
regulated credit supply, with ample gold
support. spells employment. industrial
activity and social contentment. A
poorly managed credit supply, built on
too small a gold basis, means the re-
verse.
Nearly every nation now is, or is
striving to be, on a gold basis. China
is about to 60 on that basis. India Is
working on modified gold pass.
Worlds Gold Stock.
How much new gold must be mined
every wear to maintain. the credit equl-
librium without business disturbance?
Prof. Lionel D. Edie, University OF
Chicago. who made an important study
of the gold situation, estimated the
worlds gold stock in 1925 at $780,
600. 900. Some time between 1880 and
1895 a deficiency of actual stock may
be expected to exert an influence upon
the value of gold.
Owing to exhaustion of deposits and
the application of the law Of diminish
ing returns future gold production Is
more likely to decline than to increase,
SAYS DR.. Edie. THAT would tend to
cause a relative decline of the price
level in all gold standard countries"
It is the Edie contention that no Sc
rious longtime deflation of the price
level in gold standard countries is likely
to take place before 1885, but after
that time sit is likely that there will
set in a gradual lowering of the price
level over long period of years"
With regard 10 suggestions OF changes
in the gold standard which might bring
about an economy of gold-the with
drawal of gold circulation and the pool
ing of reserves-Dr. Edie does not see
anything but temporary relief.
Monetary Problem.
Prof. Gustav Cassel, who stabilized
the Russian money system in 1923. be-
lieves the general level Of prices is ex-
clusively a monetary problem and that
the only true solution is for nation TO
"have an invariable money standard OF
value"
I'VE cannot give the working classes
higher wages by falsifying the monetary
unit Systematically" he says. I'VE can
only do it by economic progress and by
increasing the capital of the country so
that more workmen can be occupied
under better conditions, and therefore
1t is necessary that a nation should
save as much as possible to be able to
increase the capital supply of the coun-
try; that is to say, to increase its supply
of factories, buildings, working mems
houses, waterpower, electricity and
everything you want in the way Of
capital equipment.
THAT is the only way of real prog
feSS, and nation must have real prog
ress If it expects its workmen to get a
better standard of living. But we can
not serve the purpose in the monetary
field better than by keeping the none
tary unit inviolate."
Prof. Cassel sees little to be gained
by pooling the gold mines of the world
under an international head, because
gold today is an international medium,
and such a progress would not increase
the gold supply at once. What he
wants is a rationalizing of the gold we
have to do more work. He believes the
central banks of the world should be
organized to do just one thing-"limit
their own demand for gold"
Stable Money Is Aim.
Becoming more specific, the famous
Swedish economist believes the Federal
Reserve system has. no other function
than to give the country a stable
money" Checking Stock Exchange
speculation should not be a subject
OF the Federal Reserve policy at all,
he maintains.
Holding that "the general level of
prices Is exclusively monetary QueS-
ton, and the major function of the
central banks is that of providing
stable money standard for each coun-
try" Prof. CaSsel says:
There is no economic force which
would prevent countries from keeping
to the gold standard as long as the
central banking systems are intact and
can follow their own policy, because
they are supreme masters of the sit
ciu t1NT< fo4k hot
nave to regulate the supply or means
of payment"
Speaking before the Committee on
Banking and Currency Of the House
of Representatives. DR.. Cassel reiterated
these opinions and stated that the first
purpose Of the Federal Reserve system
Is to keep up the gold Standard-that
is to say. to keep the dollar at pur-
chasing power parity. with gold. This
Is unquestionable, because there is prac-
tically no other opinion in this coun-
try"
But Roy A. Young. governor of the
United States Federal Reserve Board
when asked by Representative Strong
this question, do you think the first
duty of any financial system is to at
tempt to stabilize the purchasing power
of its unit of value?" replied: mo, I
hardly think so. 1t never has BEEN"
The Strong Bill.
At the hearing two years ago on the
Strong bill, which was introduced with
the idea of having the Federal Reserve
Board use its efforts more effectively in
realizing a more stable purchasing
power of the dollar, E. A. Golden
weiser, director of research and Stats
tics of the Federal Reserve Board, cp-
posed the bill because, as he said: THE
real question deals with one class OF
price f1uctuation, namsly: The relatively
short time fluctuations like those be-
tween 1922 and the present. The big
peaks are wartime peaks and require q
special approach. The long time trends
are both elusive and misleading"
No scheme for managing the none
tary unit has yet been adopted by any
nation. Scores of schemes have been
suggested. One of the most famous is
that of DR.. Irving Fisher of Yale, who
suggests these essentials in a plant to
stabilize the dollar:
One-Setung up commodity stand
ard to replace the standard of mere
money metal. Two-Erhploying an index
number for that purpose. Three-Cor-
recting money metal standards through
sliding scale relation to another
standard
But all students of the question agree
that a stable money Is desirable and
increasingly necessary. The principle OF
a managed gold standard" is gaining
ground. But how to do it--that's the big
question!
Discount Rates.
"By manipulation of the discount
rate Of central banks, or by interna-
tional regulation of the amount oi
metal produced in the gold field, oil
by applying the principle of the com.
pensated dollar, or by some other de.
vice, the value of money NAV bt