Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-06-21

Wall Street Journal. The time seems
cpportune, therefore, for a further
study of the situation in the light of
present conditions, he declares, and
continues in part:
"At the time of the Stock Exchange
crisis in 1929, there did not appear to
be anything seriously wrong with gen
eral business. There was no imitation
of commodity prices, no accumulation
of unsold goods in the hands of either
manufacturers or retailers, in short,
nothing to indicate that a major de-
preston was commencing. Why has
this Stock Exchange trouble developed
into one of the most severe business re-
actions of history, worldwide in scope?
THE stock market alone cannot ex-
plain all that has happened. 1t Is now
generally realized that the severity and
continuance of the reaction have re-
suited from the drastic but unforeseen
decline in commodity prices A drop in
the price Of any one, two or three arti-
cleS may be explained by overproduc-
ton, but when the drop applies to all
commodities general cause must be
sought.
Changing Value Of Dollar.
"There can be but one explanation, a
change in the value of the dollar itself.
The dollar is the measure for value pre-
cisely as the acre is the measure for
land and tha ton for weight. If the
dollar measure means one thing today,
something different in six months,
something entirely different again in
five years, then business has no endur-
ing foundation; it is built on shifting
sand.
According to official statistics, the
average commodity price today is but
rs per cent Of the corresponding aver
age for the years 1929. To be con-
sentative, we shall say 80 per cent. In
other words, for commodity purchases.
30 cents today Is the equivalent Of 81
formerly, and 81 today equal to $1.25
formerly.
Let us note how this change objects
debtors and creditors. All amounts ow-
ing on bonds and mortgages, and all in
terest ad taxes. must be paid in currency
worth at least 25 per. cent more than
formerly. This adds Is per cent to the
weight Of all debts. Twenty-Five per
cent more of the products of farm and
factory must be used to meet these
Obligations. 1t enriches the creditor
classes and impoverishes all others.
Effect on Enterprises.
ION industrial corporations the eff
feet Is particularly severe. These have
to sell their products at about rs per
cent or 80 per cent Of the prices they
formerly obtained, and yet must pay
not only their bonds and interest but
also the wages of their employees in
currency worth IS per cent more in
purchasing power.
Can existing rates Of wages be
maintained? If all industrial corpora
tons have to be content with greatly
rnIf AfVNrr~ Dc RlA@
will be less able to continue their old
rates of wages. Most will be quite I'M
able to do so. Employees in reality are
receiving bonus of Is per cent be-
yond what the same wages would have
meant a few years ago, for their dol
lars have that much greater purchasing
power, but any attempt to lower wages
on large scale certainly will meet
with bitter opposition. Wages and
profits had become adjusted harmoni-
ouSly on the price level formerly pre-
vailing, but that happy equilibrium no
longer exists.
Even If present wages could be
maintained, that would help but one
class, and even of that class only
those who would be employed. What
Of other classes? Can our farmers
succeed II the prices Of agricultural
products remain at their present level?
Must they lower their standard of
living? For real prosperity must not
every section Of our people be pros
porous?
Fluctuating Dollar.
"No other conclusion is possible but
that most at least of the evils from
which We suffer are directly due to the
alteration in the purchasing value of
the dollar. If the average commodity
price had been maintained at anything
near it's old level, the depression al
ready would be thing of the past.
But what of the future? We had
looked for an improvement in symp-
TOMS but this has not materialized.
All things have an end. but If we do
nothing, what will that end be and
when will it come? What will hap
pen in the meantime? Do we allow
epidemics to run their natural
course? Are we helpless? Emphati-
cally no. We have within our reach
a proved and effective remedy which, If
applied in the past, at least would have
saved us from a major business de-
preston and which even now can work
wonders In restoring prosperity.
Purchasing Power.
''That the purchasing power OF a
currency depends on the amount of
that currency and currency credits
which may be outstanding can no
longer be denied. We have had too
many convincing proofs to have any
doubt left. We have but to remember
how, when Germany began issuing an
excess OF currency notes, prices In that
country mounted steadily until they
reached almost unbelievable heights
4kI PFif ~
tracted her currency to restore sterling
to its old par, prices there Shrank pro-
portionately. In all the discussions OF
the past months, have not noted even
one denial Of this basic principle.
I'm American banking, the legal basis
of the currency is the Federal Reserve
bank credit" This bank credit Is the
amount Of legal tender currency and
currency credits permitted to be out
standing. 1t takes the place OF gold
as the foundation of all business credit.
Just as in Germany, France and Britain
the amount of currency credits out
so in the United States the amount Of
Federal Reserve Bank credit controls
the level of prices here.
Main Items in Bank Credit.
''The bank credit is represented by
three main items:
81. Rediscounts and borrowings by
member banks.
~. Bills bought in open market.
"3. Government bonds.
THE first is not subject to direct
control by the Reserve directors, and
moreover has shrunk to small figures,
as also has the second item. Govern
ment bonds are by far the most i'm
fr5rCant item, and also the one most
easily and rapidly controlled. The
market for governments is active and
the supply practically unlimited. BY
increasing or decreasing their holdings
of Government bonds, the Federal Re-
serve directors can raise or lower the
total bank credit at will and thus can