Evening star., 1933-01-23

ANOACOVCAb AAi opAtC VI Vic ulSdHpOllIJ>
ing failure Of the gold standard to
function satisfactorily among the dis
orders Of the last few years, I have
not the least doubt but that II We
could again achieve order and balance
in the worlds production and trade
which are conditions of stability and
growth, and If we could get the world
once more back on the gold standard
ana stabilize exchanges central bank
managers have acquired knowledge and
skill to make more economic use OF
the gold than ever before, SO as to
make this gold suficient base for q
volume OF credit which would finance
all our activities on q much higher
price level than exists today.
The rise In the value of gold in
terms Of which many attempt to ex-
plain the recent worldwide decline OF
commodity prices might better be
thought OF as primarily the reflection
OF worldwide disorders which have
curtailed production, markets and
trade, and have disturbed, and in many
cases completely paralyzed, the normal
functioning Of our credit and exchange
mechanism.
Careful Scrutiny Urged.
But the heart of the position of the
advocates OF revaluation of the dollar
Is the claim that the reduction of the
value OF the dollar, regardless of what
had caused its rise, would bring about
rise Of domestic prices correspondents
TO the devaluation. Such a condition
should be subjected to the most careful
scrutiny before being accepted at Its
face value.
II the United States were shut oil
from the rest of the world so as to be
completely self-contained without any
outside relationships Of any kind, cut
tlng the gold content Of the dollar in
hall In and of itself would have NO
dlrect effect on the price structure. It
must be assumed, therefore, that the
rise In domestic prices IS intended to
De brought about indirectly by the rise
OF prices expressed in terms Of dollars
OF goods sold in world markets.
But no one can predict with aSsur-
ance that this would happen. Our de-
valuation Of the dollar would introduce
major disturbing element in the
worldwide, disorder of exchanges. !
am inclined to believe that what would
happen would be q further depression
In world prices, accompanied by q
slight increase in domestic prices, pro-
Vding other factors were not at once
projected into the field.
1t Is not unreasonable to suppose that
such action on our part would pull
those countries still on the gold stand-
ard on the gold standard; that pres
ent disordered exchanges would be-
come more chaotic; that currencies
would tend to depreciate either inten-
tionally or by necessity still further;
that trade barriers would rise still
higher: that international trade would
become further restricted; that world
prices would fall lower. and that the
combined effect on world confidence
would bring in the train Of such de-
velopments literally incalculable ca
lamities.
It must not be forgotten that this
action would involve a deliberate de-
fault on the part of the United States
Government on its own obligations. ac-
companied by compulsory default of
all those obligations that are payable
IN gold dollars of the present standard.
Reputation by the United States Gov
eminent. and breach OF contracts COM
ing at such time as this. might we'll
destroy the foundation Of our entire
economic structure and postpone in
definitely all possibility Of world re-
covery. This is a high price to pay
tor problematical and, at best, limited
increase in prices.
Compulsion Of Events.
The cases of Italy, France and Great
Britain cannot be cited as examples. In
all three devaluation was brought about
by the compulsion Of events, and not
by deliberate choice. In the first two
cases legal enactment represented
merely recognition Of an existing state
Of facts. Moreover, those who so con-
ndently claim that debasement of our
currency would be followed by q rise
In domestic prices can find but cold
comfort in the price history of Great
Britain since September, 1881, for
whereas the gold value Of the pound
sterling had deprecated from 1886 to
1926, as Of November, 1892, the index
OF prices In England was only two
points higher than In September, 1881.
As have said, the other main group
OF plans for increasing prices by cur
rency manipulation contemplate infia-
ton brought about by the piling up of
large governmental deficits that can
not be met through normal borrowing
operations, or through the more pow
erful method Of resort to the printing
adequate gold reserve back of them.
Under the first Of these, the Govern
ment must inevitably resort to the CEN
tral banks Of issue. They, not acting
on their own volition but by Govern
ment compulsion, are driven to provide
the basis for credit increase Such a
procedure was resorted to during the
war. In fact, many Of our agricultural
troubles today are directly traceable to
this wartime imitation of prices of ag-
ricultural products and land.
The best example. however, is fur
niShed by the course of events in
France after the war. The French gov
ernment, faced with recurring deficits
turned to the Bank of France. The
government gave its notes to the bank.
The bank, In turn, gave its bank notes
TO the government. They were paid
out by the government to meet current
expenditures. The procedure reduced
the value OF the franc from 10 cents to
2 cents, and threatened q major disas-
ter which was only just averted by
bringing the imitation under control.
Value Of U. s. Promise.
Under the second and more powerful
method OF imitation. the United States
which would have no value except for
the say 50 Of the Government. It will
be urged, Of course, that the promise
OF the United States Government is
worth great deal. It Is under ordi-
nary circumstances, and when the Gov
ernment conducts its business with pru-
dence and in accordance with the die
tates OF sound financial policy. But, If
the Government of the United States
should undertake to print and pass out
SAY so" money. it would at once de-
stroy confidence In all United States
currency.
The people know that greenbacks de-
preciated to IS per cent of their face
value. They know that the "say so"
marks printed by the German govern
ment deprecated from a value of "a
cents to zero. They know that once
the United States embarks on this
course, United States currency is going
at once to depreciate in value.
What would happen? It should be
recognized that the bad effects of such