Evening star., 1933-12-15
BY DIR. O. NJ. w. SPRAGUE.

| BY Dh. u. NJ. w. SfhAUUE.
| Professor of Banking and Finance. Har-
| var1 Business School.
I'm THIS article I shall consider the
| influence on prices that we can
expect to be eXerted by the depre-
| ciating dollar.
At the outset it is interesting to
note that President Roosevelt. on va
rious occasions, has insisted he is en-
deavoring to establish a monetary sys-
tenn which shall be independent Of
monetary movements and price changes
| in other countries. So far as that
policy has been developed, however, it
| is policy which exerts en- influence on
our own situation only through the
changes which it effects in monetary
relations between this and other coun-
tries.
Currencies often have deprecated as
result of excessive credit and cur
rency expansion. In our case, depre-
cIation has preceded expansion The
dollar has not declined because of rise
of prices here unaccompanied by a
parallel advance in other countries. In
other words, instead of depreciation
merely registering a price situation
which had already been reached. we are
| seeking to reach desired situation
through the influence that depreciation
| may exert on prices.
| Direct Influence Limited.
| The direct immediate influence that
depreciating dollar can exert on
! prices, aside from speculation, is linn
tied to those commodities that enter
into foreign trade in large volume,
whether they be imports or exports
Prices Of imported commodities that
are not produced in this country. such
as coffee and rubber. are directly re-
sponsive to changes in the value of the
dollar as measured in foreign curren-
| cies
Even in such cases, it is important
| to note that the rise in prices in our
currency is likely to be in part Offset
| by SOME decline in foreign gold prices
Since the depreciation of the dollar is
| not Immediately accompanied by an
equivalent increase in money incomes
throughout the country. it may be pre-
s,med that some decline in consump-
tion of these imports will take place.
This decline, in turn. will exert weak
ening influence on the foreign gold
prices of these commodities.
1t may be further observed. however,
that If the domestic demand for i'm
ports. such as coffee and rubber. Is
highly inelastic. the maintained de-
less of purchasing power in the
hands of consumers for other uses. thus
exerting a slightly weakening influence
on prices of commodities in general
Cotton Most Important.
Prices of commodities that are eX-
ported in large volume also are directly
responsive to changes in the value OF
the dollar as measured in foreign cur
rencies. Among these commodities,
cotton is by far the most important.
1t is only through the indirect effect
which the increase in the dollar price of
these commodities exerts upon prices
in general that We can expect any
the outcome of dollar depreciation.
In the particular instance of the
United States, this indirect influence
is comparatively slight. owing to the
size of the country. the wide range of
goods produced within its borders, and
the consequent relatively small pro-
portion of export business to the total
business of the country.
If that part of the country which is
mainly concerned with the production
of cotton were an independent country,
the depreciation of its currency might
be expected to exert powerful inf1u-
ence on its price level. A high per-
centage of the labor and capital in such
an area would be engaged in producing
goods for export, and the rise in prices
of these exported goods would have a
sufficiently potent influence to affect
the entire price structure. with re-
sultant higher money incomes.
Exports Not Vital Factor.
| The lneffectiveness of dollar depre
citation as price-raising factor in the
United States is due to the compare
lively small percentage of exports to
cur total production. While deprecia-
tion of the dollar may exert a potent
, influence on the price of considerable
part of the aggregate of commodities
produced in Mississippi, there has been
little direct or indirect effect upon
prices of what is produced in, let us
say, Rhode Island or Pennsylvania. or
even in Wisconsin or Nebraska.
A second influence that may be ex-
erted on prices through depreciation
presents itself when depreciation has
gone sufficiently far to make possible the
expectation of various products which
would not otherwise have been exported.
At the present time. for example, the
price of wheat in the United States is
roughly t20 cents a bushel above the
price of wheat in Canada. Assuming
further depreciation of the dollar until
it is at a 20-cent discount in Canada.
and no increase in the price Of wheat,
then wheat might move in foreign
markets in competition with wheat pro-
duced across the border.
Again, consider the case of manu-
factured products If the dollar depre-
c1ates in the absence of an equivalent
rise in the prices of such goods, wider
and wider range of them might find
profitable markets elsewhere. But OBJ
viouSly this is a development that
could not go very far. 1t would be
countered in part by a lowering of
prices by foreign producers and in part
by the imposition of additional tariff
duties.
Other Influences at Work.
1t is unthinkable that any consid-
cradle expansion of American export
trade will be permitted by other coun-
tries, when that expansion is induced
by dollar depreciation that has been
| brought about by the direct action of
the American Government.
1t is for these reasons that I am un-
able to anticipate that the stimulation
to exports from dollar depreciation CAN
exert a potent influence tending to move
prices upward. Such slight influence
as may be exerted in this direction,
moreover, IN my judgment, will be far
! more than offset by purely internal in
f1uences unfavorable to an advance in
prices that will become increasingly
strong if the policy of further depreci-
ating the dollar is not abandoned.
When the gold standard was aban-
doned, it is now evident that the linn
tied influence that depreciation would
| exert upon prices was not clearly per-
ceived Prices, especially for commodi-
/ ties for which there are organized mar
{, kets, moved up rapidly, even discount
| ing the anticipation of further depre-
| citation.
At that time, moreover, other infiu-