Evening star., 1933-04-30
IMITATION is HELD MENACE
TOU. S. CREDIT STRUCTURE
Cheapening of Money May Cause Lending
to Dry Up, Thus Reducing Means for
Doing Business Throug hout Nation.

about forty-five billions of credit-money
The sum of the two, fifty billions, Is
what the country needs to carry on
business, what we must have to carry
on business at anything like the present
level.
In this condition, we start to initiate
the five billions Of currency. We begin
by saying we will double the amount.
Chat would not be small dose, but 1t
is convenient In an attempt to make
the whole subject SIMPLIFY The pur-
pose Of adding five billion dollars OF
new currency to the existing flve Is to
reduce the value of each dollar. That
is always the purpose Of imitation.
doubled. each individual dollar becomes
worth so cents.
We must now 60 over into the area
of credit money and see what happens
there. Credit money is created in only
one way, by an operation of lending, by
one man lending and another man
borrowing. When q banker or . lend
ing institution, such as an insurance
company, or a private citizen, sees, as
all Of us see in America just now, that
there is talk about imitation, he be-
comes cautious. Presently he is con-
vinced that imitation Is really going to
take place, that the quantity of cur
rency Is going to be doubled. He real
izes that what is today a dollar Is go
ing to be, after imitation, so cents.
Now let the reader ask himself
whether he today would lend out 500
for a period of three months or six
months If he knew, or felt sure, that
in the meantime each dollar would
become q 50-cent piece Obviously
you will not lean 500 If you know
that it is going to be repaid with 100
50-cent pieces.
Lending Dries Up.
The reasoning Of the reader is the
reasoning Of every lender in tho coun-
try. Lending dries up-which is the
same as saying that credit dries up.
Lenders not only do not make new
loans, they demand payment Of old
loans as they become due. Credit
shrinks.
The result is that the existing forty
five billions of credit shrinks to forty
billions Il use q convenient figure, Of
course there Is no rule about it,. And
the end Of the whole operation is this:
We have increased the currency by
five billions-but credit has shrunk BY
five billions. In the net, we are right
where we were before. We have a total,
Of currency added to credit, Of so bill
lions. Being right where we were at
the beginning. we have the same need
Of more, and so we take another
dose" We initiate the currency by an
other five billions
That. I think, Is the reason under
lying the assertion that imitation, once
begun, Is difficult to stop. It justifies
the warning by Senator Reed Of Penn
sylvania that imitation is like dynamite
or like strychnine; a small dose can
save a mans life-but too big q dose,
or too many doses, can kill q man.
It is possible the Roosevelt admins
tration may be able to keep the dose
small, and to give only one. It Is pos
sible the administration may never
tratlon has asked for so far Is the
power to initiate If imitation seems to
1t desirable
One thing is certain. So long as the
period of doubt lasts we are going to
have q good deal of excitement-anda a
good deal Of elementary instruction
about currency and credit Of the sort
here attempted.
Fallacy In Argument.
One bit Of A B G instruction about
imitation should attempt to recite just
what IS the effect on various classes OF
men. In the debates In Congress there
has been much loose talk to the effect
that imitation will "help the debtor
class" and, by the same act, reduce the
wealth Of the creditor class" In this
there is some fallacy-and perhaps
some demagoguery. America Is not
divided into one group of persons who
compose the debtor class" and an
other group who compose the creditor
class" In the mass Of cases each man
is at once q debtor and also q creditor
The reader Of this article can, In a
few minutes, inquire into his own
condition; he can determine to what
extent he is q creditor and to what
extent q debtor. Let us consider the
case Of a typical farmer. II he has
mortgage Of 5000 on his farm he Is
to that extent a debtor and will be
benefited by imitation. But II he has
life insurance policy Of $1,000 ne IS
in that respect a creditor and will be
harmed by imitation. In such q case
the benefit and the detriment OF in
fation cancel each other If he has
money in the bank he Is creditor
and will be harmed. II he owes money
for farm implements he Is a debtor
and will be helped. If he has money
coming to him for crops he has sold
he is creditor and will be harmed.
Any man in any walk OF life can
quickly make a summary of his
own financial condition, determining
whether in the net he IS debtor or
creditor, and whether in the net In
hation will harm him or help him.
(Copyrixht. 1889