The Daily Alaska empire., 1933-11-20


 Administrations monetary policy is its intention. In general terms we know what it is meant to accom- plish. It is destined to raise the prices of those goods most which have fallen the most, so that those who produce those goods may have incomes to buy other goods and to pay their debts. The evil of a deflation lies in the fact that some prices fall more than others; if in good times it took one bushel of wheat to buy a pair of overalls, there is trou- ble if it suddenly takes two bush els of wheat to buy the overalls. This trouble is called the dispar- ity of prices. To correct the evil of disparity the price of wheat in dollars must rise or the price of overalls must fall; that is to say, the two prices must come to- gether until one bushel of wheat again buys one pair of overalls This correction of disparity in prices is now generally called re- flation.
 It is very necessary in managing reflation to keep continually in find that the evil to be corrected is disparity in prices. For exam pie: if wheat at S2 will buy a pair of overalls at $2, and then if wheat falls to $1 while ovsralls stay at $2, you have the disparity. The farmer can not buy overalls; the maker of the overalls is thrown out of work. That is the kind of evil we have been suf- fering from. But now supposi1lg that by some monetary stunt you doubled all prices; wheat would then be $2 and overalls $4. Would you have gained anything? You would not. What you want is to have the price of overalls stand still, Or even to fall, while the price of wheat rises.
 Now, this is, of course, great amplification of our real situa- ton, but it may help to fix in mind the principle of a sound price relation.
 It is interesting to examine what has happened to American price relationships since President Roos- evelt took office. Fortunately there is now available an expert study of the subject covering the period up through September. The study has been made for the National Bureau of Economic Research by MT Frederick c. Mills. There IS no more authoritative student Of the subject that MT. Mills.
 To put his results briefly, and without using too many figures, MT. Mills finds that from March to July the relation worked al7 most exactly as one would have desired in order to correct dispari- ties of prices and bring the econ omic system into balance. But he finds also that from July to Sep tember the tendency has been to increase the dispariities and so to make it more difficult for goods to be exchanged. His findings, which are supported by colsely analysed statistics, corres spond with the general sense of the country. Up to July it was generally believed that recovery was proceeding rap- idly; since July there has been disappointment and a sense that recovery has halted.
 What was the evidence of a re- flation between March and July? Ignore prices stated in dollars, and measure what certain classes of commodities will exchange for, that is buy, in terms of other classes of commodities. In Feb ruary, 1883, the raw products of American farms could buy at wholesale, only GA per cent of what they bought in July, 1929. On the other hand, manufactured goods could buy III per cent. These are examples of what is meant by dis parity. Either farm prices were too low or manufactured goods too high. Until the gap was closed farm products and manufactured goods could not be exchanged suc- cessfully.
 Now what happened between February and July? The purchas- ing power of raw farm products rose from GA to 82 per cent, the