Evening star., 1933-12-22
by DIR. O. M. w. SPRAGUE,


ton of the dollar, for example, at one
rate rather than another will doubtless
exert an influence on the price situa-
ton, given sufficient time for its effects
to work themselves out.
But that means long time, what
ever time must elapSe until we shall
have reached a situation IN which there
shall be an intense demand for addi-
tiolal credit and currency. The i'm
.'odiate effect of devaluation is nil un-
less it gives rise at once to such an
additional demand.
In preceding articles have expressed
the decided opinion that neither fur
ther depreciation of the dollar nor in
flation will be helpful as means of
bringing about a trade recovery and
higher prices. In this article mo. 81
and the next mo. 81, I shall indicate
those policies which in my judgment
will most speedily enable US to attain
those much-desired objectives.
Facilitate Economic Policies.
start with the proposition that nc
monetary arrangements of themselves
will be sufficient for the purpose; while
inappropriate monetary policies may
prove an insuperable obstacle to recov-
cry, the best conceived monetary poll
cies can do no more than support and
DEVELOPMENTS with are required to
convert the existing situation from de-
preston to prosperity.
We already have a supply of money
amply sufficient to support far more
credit and currency than would be re-
quired with full employment, active
business and level of prices and money
incomes far above those which obtained
in 1926. Our fundamental problem
then. is to bring about a situation in
which there shall be an active and
maintained demand for more credit and
currency.
When one looks back upon recovery
from past depressions it is not possible
to explain exactly why recovery began
at some particular moment or to
measure precisely the relative impor-
tance of the conditions and influences
that brought it about. 1t is significant,
however, that past revivals from de-
preston were not preceded by the adop-
ton of unusual monetary policies.
Additional Credit Available.
In general we can say that there was
commonly an available supply of addi-
tional credit and currency at mod
erately low rates. This is, of course, a
condition which now obtains and one
which may be expected to become more
pervasive with the turn of the year
when the Deposit Insurance Corpora
ton begins to function. 1t is also a
centuated by additional open-market
operations on the part of the Federal
Reserve banks.
If it is wise to follow past expert
ence we may be reasonably content with
the monetary position and look in other
directions to discover what may be
needed to bring amout an improvement
in the situation
Policies that give rise to doubts about
the security of the currency exert a
deterrent influence, as would also fears
that the supply of currency and credit
might be curtailed. Since we already
have a large available supply of unused
credit and currency. I believe that
what may be styled neutral monetary
policy will best serve the purpose of
bringing about its active employment
in so far as that can be influenced
by monetary action.
Neutral Policy Argument.
My insistence upon the advEability
conviction that the development Of an
active demand for credit and currency
mainly depends upon influences of a
monetary character. Some of these
factors in the problem Of trade recovery
were considered in the first two articles
of this series. but they are Of such
fundamental consequence that l shall
give further consideration to them from
slightly different approach. taking up
first the relief and recovery policies OF
the administration.
There is universal agreement that
emergency relief measures were required
co meet the situation that confronted the
March, and 1 think it will also be
generally agreed that the measures
adopted served to meet the more I'M
mediate requirements of the situation.
We have now, however, reached the
stage at which it is important to con-
slider whether or no these relief meas
ures are of such character that they
will be of temporary duration, grad
ually becoming unnecessary.
It is to be hoped that IN the nex'
session of Congress they will be SUBJ
iected to scrutiny designed to determine
whether statutory changes or changes
in administrative policies may not be
required in order to render the con-
tinuance of relief less and less neces-
sary. Some notifications would seem
to be required. both from the point oi
view of the credit of the Government
and on account of the influence which
relief measures are exerting upon the
the general business situation.
U. S. Credit Declared Ample.
Although Government expenditure
for relief is very heavy, the credit OF
the United States Government is quite
sufficient to warrant very considerable
increase in the Government debt. Ar
extraordinary expenditure of several
billions of dollars for relief purposes
need occasion no doubts and fears
about the credit of the Government OIL
its ability to raise the needed FUNDS
by the sale of additional bonds.
But this statement holds good only
on two conditions: First, that the huge
expenditures for relief seem by way Of
tapering off in the not too distant
future, and, in the second place. that
no doubts are entertained regarding
the future of the currency. -Four bill
lion dollars of relief expenditure thi!
wear under conditions which warrant
the expectation that it will sharply de-
cline next year is far less disturbing
than a present expenditure OF hall tha
amount under conditions which vii
lead to its probable continuance Of
even increase in succeeding years.
In the particular case of agriculture
aid designed to increase the prices o.
particular farm products that had de-
clined to abnormally low levels wa:
desirable. But such expenditure mus
continue indefinitely unless in the