Evening star., 1933-04-02

OuBuI W Say dL once CIldU IIl'
question is extremely difficult to answer
There are days when I feel imitation j.
right ahead of us and other days wher
it seems utterly unlikely.
Imitation" in the popular sense, a!
used in the questions coming to Wash
ington has one of two meanings. Hence
the questions divide themselves intc
two classes:
l. Will there be imitation in the sense
of considerable and rapid rise in
prices of goods arising normally out
OF existing conditions?
2. Will there be imitation in the sense
of formal action by Congress or the
administration about currency with the
deliberate intention of SO altering the
value of the dollar as to cause a rise
in prices?
Let us answer the first question first:
''Will there be imitation arising nor
mally out of existing conditions?"
A very recent existing condition, bear
ing on initiation and prices, is that
the Government has just added two
billion dollars to the quantity of cur
rency. Any assertion that this is in
flation should be promptly qualified by
two facts: One is that the intention is
to retire this additional currency when
it has served its emergency purpose
The other is that this recent addition
to the currency is in reality not an ad-
dition at all-it is in large part q sub
stitute foz currency which is in hoard
ing, and Sso for bank deposits frozen
in closed banks.
Deflation Now Obtains.
An answer, therefore, might say that
the recent addition of two billion dol
lars of new currency does not increase
the total of currency and bank deposits
now in actual use. On the contrary,
the sum of currency and bank de-
posits now in active use is consider
ably below normal. And this condition
is not imitation. 1t is deflation At the
moment this is written the country is
in condition of acute and extreme de-
dation
To put it in figures: A year or so ago
there were in circulation and active
use about five billion dollars in cur
rency and about forty-six billion dol
lars in bank deposits The sum of those,
fifty-one billion dollars, was the coun-
try's medium for carrying on business
at that time
Today currency in circulation has
gone up to about seven billions, but
bank deposits have been reduced by the
amount frozen in closed banks, which
is, roughly, six billions; that is, active
bank deposits are now down to about
forty billions. The present total OF
active bank deposits plus currency in
circulation is about forty-seven billions.
In other words, we have now total oil
about forty-seven billions as against a
total of about fifty-one billions year
or so ago. Therefore, the present con-
dition is not inflation-it is deflation
But initiation is tricky subject to
write about or to deal with. To con-
siderable extent initiation is matter Of
public psychology. If, for example.
great numbers of people should get the
idea today that there is going to be in
f1ation-if they should get that icea
from reading this article-then imitation
of a certain kind would come and come
pretty promptly. The expecting OF in
fiation actually brings imitation.
The state of mind which brings in
fiation is that which thinks money Is
going to be cheaper The reader of this
article knows that today 50-cent piece
is equivalent, roughly, to buShel Of
wheat. To turn it around, a bushel OF
wheat is equivalent to 50-cent piece.
Let us assume he gets the idea that a
month from now bushel OF wheat Will
be equivalent to dollar. If he gets
that ioea he will promptly begin to get
rid of his money by buying wheat with
it. or other goods. That state OF MIND,
the wish to exchange money for goods.
Is kind of imitation. Two or three times
in recent week it has seemed to me the
public was just on the point of getting
this idea and acting on it. In which
event we should have imitation in actual
existence, imitation to reasonable and
wholesale degree think we were pretty
close to this kind of psychological inf1a-
ton, to sudden burst of rising prices,
about two weeks ago.
The Materials Exist.
To sum up the present situation, in
flation does not exist today, but the
materials for initiation do ,exist-they
are here in great quantity. There is,
to start at the base, nearly five bill
lions in gold, and the Government and
the Federal Reserve System are i'm
pounding it and preventing 1t from
getting away. This five billions in gold
is more than we had at the time OF
the great boom of 1929. Five billions
in gold could support upward OF ten
billions of currency. ! am using rough
figures here and I am speaking for the
1ayman and not for the expert. Ten
billions in currency could support an
enormous sum in bank deposits, some
thing approaching 100 billions, for, as
things go in America, 81 in cur
rency has supported $40 to S12 IN bank
deposits or bank credits.
This is the same as saying that there
exists today the materials for a de-
cided imitation and therefore a de-
cided rise in prices of goods. In say
ing this. one should add that If
really great imitation got going, II II
should threaten to be runaway lnfla-
ton, the Government would check 1t "
retiring a good deal OF currency anc
by other means. But the Government
would not do this for some time. Iht
Government wants a certain amount o.
imitation, of the right sort, wants 1
very much. Checking imitation would
be an act of deflation-and l shoulc
like to see the government that woulc
commit an act of defiation under pres
ent conditions.
The net of all this is that there
exists the materials for very consid
erable imitation and a very considerable
rise in prices. They exist in such &
way that one is tempted to be ready II
see the rise begin almost any day. Po
tential imitation exists, very decldedl.
1t exists.
The other question is: "Is ther
going to be initiation in the sense Q
formal action by Congress or the ad
ministration about currency with Tn
deliberate intention of SO altering IN
value Of the dollar as to cause rs
in prices?"
AS to the administration. the answe
can be prompt and complete. There
no faintest sign of intention on TN
part of the administration to 1nf1at
the currency. On the contrary, ever
utterance and act Of the admlnistra
tion reflects intention not to inflatt
There are some who think Presiden
Roosevelt in his inaugural address hel
the door open for one form OF inf1atio
If need should come. His phrase "a
adequate but sound currency" migt
be consistent with reduction OF tn
quantity Of gold in the dollar. BIZ
there is no faintest present sign Of an
intention on the part of the admins
tration to do that. Some members {