Evening star., 1933-12-31


But there is much less to be said in
favor Of rising prices If they are brought
about at the expense of rising output.
Some debtors may be helped, but the
national recovery as a whole Will be re-
tarded Thus rising prices caused by de-
liberately increasing prime costs or by
restricting output have vastly inferior
value TO rising prices which are the
natural result of an increase in the Ma
tion's purchasing power.
do not mean to impugn the social
Justice and social eXpediency OF the re-
distribution of incomes aimed at by the
N. R. A. and by the various schemes
for agricultural restriction. The latter
in particular, / should strongly support
in principle. But too much emphasis
on the remedial value OF higher price
level as an object in itself may lead to
serious misapprehenSion Of the part
prices can play in the technique OF re-
covery. The stimulation of output by
increasing aggregate purchasing power
is the right way to get prices up, and
not the other way round.
On Governmental Expenditure.
Thus. as the prime mover in the first
stage of the technique of recovery, !
lay overwhelming emphasis on the in
crease Of national purchasing power re-
sulting from governmental expenditure
which is financed by loans and Is not
merely a transfer through taxation from
existing incomes. Nothing else counts
in comparison with this. In boom in
f1ation can be caused by allowing un-
limited credit to support the excited
enthusiasm of business spectators. But
in a slump governmental loan expendl-
ture is the only sure means OF obtain
ing quickly a rising output at rising
prices That is why a war has always
caused intense industrial activity In
the past orthodox finance has regarded
a war as the only legitimate excuse i0I
creating employment by governmental
expenditure. You, Mr.. President, having
cast off such fetterS, are free to engage
in the interests Of peace and prosperity
the technique which hitherto has only
been allowed to serve the purposes OF
war and destruction,
The setback American recovery eX-
perienced this past Autumn was the
predictable consequence OF the failure OF
YOUR administration to organize any ma
terial increase in new loan eXpendl-
ture during your first six months of Of
flee. The position six months hence
will depend entirely on whether you
have been laying the foundations for
larger expenditures in the near future
I am not surprised that so little has
been spent to date. Our own experience
has shown how difficult it is to impro-
wise useful loan expenditures at short
notice. There are many obstacles to be
patiently overcome, if waste. inefflclency
and corruption are to be avoided. There
Sf0 n
enumerate which render especially diff
cult in the United States the rapid i'm
proyisation of a vast program OF pub
lie works I do not blame Secretary
TckeS for being cautious and careful
But the risks Of less speed must be
weighed against those of more haste
He must get across the crevasses before
it is dark.
The Quantity Theory.
The other set of fallacies. of which
I fear the influence arises out of a
crude economic doctrine commonly
known as the quantity theory Of money
Rising outout and rising incomes will
suffer a setback sooner or later II the
quantity of money is rieiGly fixed. Some
people seem to infer from this that
output and income can BE- raised by in
this is like trying to got fat by buying
a larger belt In the United States
today your belt is plenty big enough
for ycur belly. IT is most misleading
thing 10 stress the quantity of money
" hich is only a limiting factor. rather
than the volume of expenditure, which
is the operative factor.
1t is an even more foolish application
of the same ideas to believe chat there
is mathematical relation between the
price of gold and the prices Of other
things. 1t is true that the value OF
the dollar in terms of foreign cur
rencies will affect the prices of those
goods which enter inso international
trade In so far as en- generalization
of the dollar was impeding the freedom
OF domestic price-raising poiicies or dis
turbing the balance of payments with
foreign countries, it W2S advisable tc
dcpreciate it But exchange deplecia-
ton should follow the success of yo'rr
dcme5tic pricc-raising policy as its nat
Ural consequence. and should no; bF
allowed to disturb the whole world by
preceding its justification at an entirely
arbitrary pace This is another example
of trying to put en- flesh by letting cut
the ',elt
These criticisms co not mean that
have weakeneE in my advocacy of q
managed currency Or in preferrlne
stable prices to stable exchanges. The
currency cnd exchange policy CT 6
country should be entirely subservient
to the aim of raising output and EN-.
plcy,nent to tie right level But the
recent gyratiohs of the dollar have
tCcnt:nu?d on Third P9~')