The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1933-12-27

/ WHO 6AdIIllIlcS UIlS Il1StOl1SdI 4CCO1 "
of which it is a part. One June 10
the administration submitted to the
London conference a currency pro-
gram which is known as the Pitt
man resolution.
This proposal dealt with silver as
we'll as gold. 1t called for the re-
establishment of a reformed inter
national gold standard. AS to gold,
it called for a reduction of the gold
reserve ratio of central banks to
Is per cent.
AS to silver it called for two
/ things: One was that the price of
silver be raised, and the other was
that as much as one-fifth of the
metal cover Of central banks should
be permitted to be in silver.
The Pittman resolution thus COM
mitted the Roosevelt administration
to an effort to raise the world price
of silver and to the revival of the
use of silver as part of the metal
cover of the currency.
At London Senator Pittman ne
gotiated an agreement, among the
silver-oWning countries and the
silver producing countries, which
dealt with one part of this pro-
gram; that is, the effort to raise
the world price of silver. The
countries. like India, which have
large stocks of silver, agreed not to
dump them; the countries which
produce silver, like the United
States, agreed to buy up or with
hold from the market the new pro-
duction. 1t is in accordance with
this international agreement that
the President has now acted, and
presumably the other silver coun-
tries will do their agreed part.
DUT in the light of the Pittman
~ resolution, this measure is
clearly only a first and a prelim-
mary step. 1t merely stabilizes, per-
| haps a higher level, the price of sill
yer as a commodity. But the pro-
cedure is artificial as long as silver
is merely withheld from the market,
as long as there is no new demand
for silver created.
The Pittman resolution, however,
proposes to create a new demand
for silver by making silver a part
of the permitted legal reserves of
the currency. If this were done. sill
IN 1a
modify in the western world, and
would become a substitute for an
additional supply Of new gold.
When a country returns to the
gold standard it promises to redeem
its money in gold. It's money con-
sists, of course, of it's currency plus
its bank deposits 1t is impossible to
have it all covered by gold. There
is not enough gold.
In order to keep people from call
ing for gold, there must, however.
be enough gold on hand to make
them believe they could get it if
they wanted it.
The workable proposition seems
to be somewhere between $40 and
SIS of bank credit plus currency to
ST of gold. If, therefore, a dollar or
| gold is drawn out of the banks, and
boarded or taken out of the coun-
try, somewhere between $40 and SIS
OF credit have to be Cancelled. This
is not an absolutely accurate state
ment, but, broadly speaking, it is
true.
1t follows that if for any reason
there is heavy demand for gold,
credit must contract, and, when
credit contracts, prices must fall
When prices fall, gold buys more
goods, that is to say, it increases
in value. The effect of that is to
step up the demand for gold, since
that is the one thing which is be-
! coming more valuable. The greater
the demand for gold, the more
credit contracts, and the more prices
fall.
Now between 1925 and 1892, or
Whereabouts, gold enhanced in value,
credit contracted and prices fell.
What happened in those years? Ac-
cording to the monetary heretics, a
number of things happened, all of
which combined produced an abb
normal demand for gold.
In the first place, the gold supply
itself was short, relative to the
growth of business, owing to several
years diminished gold mining dur
ing the war.
In the second place, as one coun-
try after another, beginning in 1924,
returned to the gold standard, it
had to bid for gold to build I'D
gold reserve. Thus there was an
enormous demand for a somewhat
short supply. Yet prices in all
/ countries were $50 per cent of pre-
war, and nuless credit was stretched
beyond anything in history and kept
stretched, there was not enough gold
to maintain those prices. The DO
sition was made more difficult by
other abnormal demands for gold.
such as reparations and war debts.
tariffs raised by creditor countries
and our bull market.
All these things combined, a rela-
lively short supply of gold, a high
demand for gold to establish the
gold standard, and the complica-
tons Of postwar politics and finance.
go a long way to explain why world
credit contracted and prices fell.
= y
/ 1T IS here that the silver people
Il enter the discussion with their
most telling argument. They &C
cept all the reasons outlined above
for the rise in the value of gold, and
they add another one They argue
that in the twenties a series Of acts
by governments in Europe and Asia
destroyed the value Of silver, and
that this put an additional strain
upon the gold standard.
In 1920 Britain debased its silver