Evening star., 1933-09-23
AFTERMATH HELD
INITIATION PERIL
Experience Shows Patient
Asks for More After Receiv.
ing First Dose. i.
BY DAVID LAWRENCE,

Imitation, word little understood
but often used in the conversation Of
bankers. business men and politicians
these days, does not mean the same
thing to everybody. Hence the con-
fusion that has arisen during the past
week to cause much concern here.
Talk of Imitation" is leading to un-
certainty In business and finance.
What does imitation really mean?
How will it work If applied and what
will be the effects? canvass OF the
experts shows they all agree at the
outset upon the Importance Of defining
what kind of imitation is meant. Credit
initiation happens often and Is merely
credit expansion. We have that al
ready through the open market opera
tions of the Federal Reserve.
Talk of currency imitation is what
is bringing most apprehension. In the
old "greenback" days after the Civil
War, the Government issued money
which was considered to have a certain
value. 1t had no real reserve of gold
OF silver back of it. Hence the public
soon considered 1t worthless.
Would Increase Reserves.
Governments can issue money, but
the people say what it is worth. Con-
gress granted the President authority
to issue three billions of new money.
A small redemption fund was to be set
aside to retire it. II three billions in
new money were issued it would prob
ably be used first to pay for public
works Expenditures. 1t would get into
circulation and would be deposited in
the banks by contractors and builders
and all those to whom the public works
jobs had been allotted. But the banks
in turn would deposit the money in the
Federal Reserve banks and at the end
OF a short time there would be an ad-
dition to the present excess reserves
which amount to about three-QuarterS
OF billion dollars. About all the new
currency would do would be to increase
bank reserves.
There would be more money available
than the banks know what to do with.
Now as tor the people who made money
Of their contracts. they would pay off
same as if the Government borrowed
the money and paid for the public
works without currency imitation.
The effect on prices Is, Of course.
what the inflationists seek to control
If more currency is issued presumably
the dollar becomes less valuable. or
rather it buys less. Two dollars have
to be used to buy what was once bought
for a dollar-asSuming for illustration
that the effect is to double prices.
Cheapening dollars by one-half is the
same as multiplying prices by two.
Hardship on Fixed Incomes.
It's all very well II wages go up
correspondingly But unfortunately for
the people with fixed incomes. the
school teachers. the clerks and the vast
number Of employees who are working
for companies that have not been able
to increase their business volume. the
unfortunate result would be hardship
in meeting the increased cost OF living.
Imitation bears hardest on the middle
classes of country. 1t helps the
debtors only in the sense that they can
pay their debts in cheaper dollars. but
business has to get better so they will
have a supply of those cheaper dollars.
The real danger in imitation Is not.
however. in the issuance OF three bill
lions of paper money. This sum is
relatively inconseQuential when the size
of Americas public debt Of $4,000 .000,-
600 is taken into consideration. What
is troublesome is the after effects OF
the first dose Of imitation. Experience
Of history shows that the first dose
never satisfies and that the patient asks
for more. Rising prices are mistaken
for real expansion and more currency
is issued to keep the price level up with
the result that currencies grow less and
less valuable and Government bonds
and other securities depreciate and the
whole capital system Of the country be-
comes apprehenSive and there is real
flight of capital
This is why there is very little said
from high official quarters about the
imitation remedy. Indeed. this week II
is significant that Secretary Wallace OF
the Agricultural Department remarked
in a public address that imitation was
not a "cure-all" Coming from this
source. in view of the demand for mf1a-
ton that has been supposed to be de-
veloping among farmers. the speech
may be looked upon as meaning turn
in the initiation tide further and further
toward sound money and not printing
press currency.
tCopyright 1933)