Evening star., 1933-01-23
Declares Policy Probably
Would Delay Possibility of
Recovery Indefinitely.
Continued From First Page.)


would relate money or credit to prices
we have to take into consideration the
further factor of the. rate at which
| that credit is used, or the velocity OF
the turnover, for two dollars that are
used once during a year obviously dc
| no more work in moving merchandise
! than does one dollar used twice dur
ing year.
Moreover, we do not live in a self
contained country segregated from the
rest of the world. Our prices, cur
rency and credit structures are directly
related to and affected by the situation
in world markets where our goods are
exchanged for the goods of the rest
of the world through the medium Of an
international credit mechanism.
The freedom of exchange and the
prices at which exchanges OF our goods
are effected are, therefore, influenced
by the relationship between our money
and the currencies of other countries,
expressed in terms of dollars.
Problem More Complicated.
1t is apparent, therefore, in the first
place that We are dealing with some
thing more complicated than could be
reached by a mere expansion Of cur
rency.
In the second place, assuming we
could bring about at will an increase
in the volume and velocity of credit in
use and that a general rise in prices
might ensue. there is nothing to indi-
cate that this process of itself would
restore proper relationship between
the prices for different commodities or
groups of commodities. In fact, it is
conceivable that it might increase the
maladjustment.
I am convinced that We are suffering
today from a downward movement Of
prices and from the unevenness of this
movement, as well as from the low
level Of prices. It Is distorted price
and obstruct the exchange of commodi-
ties and thus result In a tremendously
restricted volume of business. II the
volume OF production and business
could be brought back to normal, even
at comparatively low price level,
many payments on debts would once
more become bearable and the debts
themselves could in time be liquidated.
1t must be admitted, of course, that
there are many debts that must be
written down or off unless prices can
be brought to a higher level. 1 make
this point in order to indicate that even
II 1t lay within our power to bring
about through some tnfiationary process
much higher price levels for ali COM
modities, services, ETC., this of itself
would not cure the situation so long as
the Embellishments continue.
This does not mean that I do not
believe 1t highly desirable that prices
should rise. do most emphatically.
l also believe that an ample supply Of
money or credit readily obtainable
for both long and short time at low
interest rates is an important factor
In bringing about that rise; not because
ample credit readily obtainable win Of
itself produce high prices. but because
that credit working through other eco
nomic factors is an essential condition
for increase in the volume of business
transactions and thus in prices.
Credit Structure Greater.
This gives rise to q third point.
What reason IS there to believe that
under our present domestic monetary
system and policy the necessary amount
OF potential credit is lacking? Our
stock o. gold. the basis upon which our
credit structure rests, is greater now
than in 1929, and would obviously sus-
tain at least an equal amount of bank
credit. The member banks alone gave
5000. 100000 more reserves than the law
by SO O0O, 100000 without borrowing an
additional cent from the Federal Re-
serve Banks
Bringing this credit into use, how
ever, Is apparently q very different
question; the actual volume of bank
credit is much smaller than three wears
ago; the velocity Of bank deposits has
been greatly reduced, and the estimated
volume OF business and financial trans
actions in this country In dollars at
current prices during the year 1882 has
been less than IS per cent of the 1929
volume
This brings us to the real issue. I
believe that while 1t Is necessary that
easy money conditions should be main
tained, the remedy will be found In a
series Of steps and readjustments
calculated to remove the barriers that
now stand in the way Of the produc-
ton and exchange Of goods, and that
as commerce and industrial activity
expand credit will simultaneously be
sucked into use and prices will rise.
The inflationists, on the other hand,
seek by arbitrary governmental action
to force an immediate and wholesale
SnPoAioAOiI Va SullCASy, JllCy Uc.
lteve will force q rise in prices that
will in turn be followed by increased
business activity.
Three questions may fairly be asked:
First, have they diagnosed the disease
correctly? Secondly, can they &C.
complish even the limited objective of
relief to debtors and stimulation to
business? And third, are not the con-
ditions which they will ultimately
create likely to be definitely worse than
those from which we now seek to
escape? The first two questions, as
we have seen, must be answered in the
negative; the third, most emphatically
In the Affirmative.
While there are many, many schemes
Tor increasing prices through currency
manipulation, generally speaking, they
fall into two classes.
The first consists In direct or indirect
imitation through budgetary deficits,
governmental expenditures being arbi-
trarily increased for this purpose.
Patman bonus bill are typical examples.
The second class consists of a num-
ber OF devices for debasing the value
or the dollar by more direct action, Of
which the proposal to reduce the gold
content may be singled out as rep
resentative, though they include num-
Der OF other plans, such as the free
coinage OF silver at 16-to-1 ratio.
Justification Questioned.
As understand it, the Justification
Tor the latter proposal is based ON the
claim that the rate of growth of the
worlds gold supply has failed to keep
pace with the worlds production Of
goods, and that the scramble of the
countries Of the world for an inadequate
supply Of gold has led inevitably to an
increased valuation Of gold and q de-
creased valuation Of goods, or to falling
prices.
The accuracy of the contention that
the rise in the value of gold has re-
suited from the failure over q period
OF years of the stock of monetary gold
to keep pace with increasing produc-
ton may be questioned ON the basis
OF very strong evidence.
However, the point does not seem
particularly significant in the present