Evening star., 1932-01-13
INITIATION THEORY
| GAINS ADHERENTS
Definitions and Results of
Policy Given In Analysis
of Movement.
BY CLAUDE A. JAEGER,
Associated Press Financial Editor.

NEW YORK, January 13.-The word
on the lip of every other economist or
financier who has formula to find the
way to prosperity seems to be 'infia-
ton
The theories vary widely: We should
have much imitation, a little imitation,
initiation of credit, imitation of currency,
imitation on the gold base, or off the
gold base, enough imitation TO check
def1ation.
Definitions of imitation vary, but
mostly carry the central idea of the
process of increasing the amount Of
money available in relation to the
amount of goods, which in turn tends
to boost prices of goods.
The most common infiationary sug-
gestions these days are primarily con-
cerned with an increase in the amount
of available credit In this connection,
some observers have described the pro-
posed $4,000 000o 900 Reconstruction
Finance Corporation as designed to
bring a moderate degree Of imitation
But it Is moot question as to whether
this program really involves imitation
Injecting Excess Credit.
If the Reconstruction Finance Corp
Grafton were to confine itself to the
quiet Dolstering of emergency financial
situations, that in itself would not
cause appreciable imitation. If, however,
it should put forth credit in such
volume as to influence consumers to
increase their purchases of goods, or
if public knowledge of the mere fact
that such an emergency organization
were operating should prove sufficiently
reassuring to influence bankers gem
orally to increase their loans to business
men, and to induce business men to
seek loans from their bankers with
which to accelerate trade, through ex-
tension Of consumer credit, an inf1a-
tionary effect would seem highly prob
able. That Is, prices would presumably
rise, or declining tendencies be checked.
The process Of injecting excess credit
into the economic structure In man
ner to increase prices Is complex The
central banking systematic Federal
ReServe-may offer credit, but will it be
used? The banker will not borrow at
the Federal Reserve If, in these days of
suspicion, he is afraid it may look bad,
reflect upon the strength of his institu-
ton, and he will not borrow from the Fed
eral Reserve unless he feels he can safely
make loans in turn to his customers.
The business man, Furthermore, will not
come to the bank to borrow unless he
has confidence that business conditions
favor profitable use of the credit
Mere reduction of interest rates is not
enough if the business man is not in
terested in borrowing or If the banker
thinks conditions are not favorable to
! lending. After the stock market crash
OF 1929 the New York Federal Reserve
Bank committed itself for some time to
a policy OF cheapening credit The re-
discount rate was lowered from per
cent to minimum of 1l2, the lowest
in the history of any great central bank.
No appreciable stimulus to business or
! trade was felt. With the disturbances
| incident with the British lapse from the
| gold standard, the bank put its rate
| back to " per cent, or more nearly to a
normal level.
Monetary Imitation.
The kind of imitation of which bank
ers have horrors is the sort of imitation
that prevailed in postwar Germany
that Is, severe monetary imitation. Cur
rency imitation is accomplished by de-
creasing the value of the currency, most
commonly by suspension of gold pay
mentS or reducing the gold backing of
the currency. In the case of Germany,
paper currency was printed in such VOL
ume that it became virtually valueless.
Great Britain has suspended gold pay
ments, but has not increased the vol
ume Of her currency, or that only little
more than quarter Of It's former value
has been lost Naturally, a decreased
value of the currency in terms of goods
brings increased prices Of goods In terms
OF the currency.