Evening star. [volume] (Washington, D.C.) 1854-1972, 1933-11-19
The Commodity Dollar
Its Application Involves Testing Theory

| in value. as the dollars they represent
are debased, the people may refuse to
buy more bonds. and some NAV sell
them at a loss to get rid of them. Then
the Government is tempted to print
money to raise its cash and paw Is
debts. When the printing presses are
started for such purposes, dangerous in
fiation begins In earnest and stopping
its prairie-f1re characteristic is a diff
cult undertaking.
Theory Of Gold Price Rise.
One Of the safeguards held by the
President, however. in the dollar de-
valuation now proceeding, is that he
has the power to increase the gold value
OF the dollar by applying in reverse the
method used to devalue it; that is. in
stead OF buying gold, to sell gold. The
UNDERSTANDING now, however, is that
purchase OF gold and consequent de-
valuation Of the dollar will continue
until prices have been raised to the
point regarded as satisfactory. In some
quarters 1t Is said the price of gold may
eventually be increased to SAL "a, which
would mean that the dollar had been
robbed Of half its gold content and re-
duced to SO cents. The Thomas, or in
dation amendment to the farm bin,
permits the President to cut the gold
content of the dollar by so per cent.
The effort to raise prices by devalu-
ing the dollar is based on a theory that
Is a little more complex than a belief
that by shortening the standard of
measurement prices VIII be made TO an
pear higher. The Presidents policy has
been Interpreted as an attempt to apply
the theory expounded by Prof. George
+. Warren and Prof. F. A. Pearson of
Cornell, whose studies have convinced
them that there is a direct relationship
between the world price level and the
world level OF gold stocks. There has
also been the effort to show that when
production OF commodities outstripped
production of gold, the price fell be-
cause Of q Shortage Of gold. And as
the country cannot build up its gold
stocks at will, lacking the discovery of
great new sources of gold, the proposal
Is made to build them up by giving
them higher book value" According
to the Warren theory, which some au-
thor1tieS conceive as a reinterpretation
OF the so-called CasSel theory, which
was propounded in 1904 by the eminent
Swedish economist, prices should rise
and bring with them the business which
usually is associated with rising prices
1900 eAO NdAuS VI b1lc COuIlLIyS XOlQ
stocks IS increased This theory, how
ever, is not accepted by other econ
omists. One of them. T. Phinney of
Harvard-has attempted to show that
the Cassel theory contains a number of
inherent fallacies which condemn It.
But, for better or for worse, the coun-
try's monetary experiment is being con-
Quoted now along the general lines of
the Warren theory. It will require more
time to discover the correctness or the
incorrectness of the theory, and in the
meantime the hope is, of course, that
the laboratory will not explode.
Results Shown So Far.
AS for the experiment SO far the
effect of devaluing the dollar on prices
has not been marked The table which
follows shows the gold value of the dol
lar as measured by the price of gold
fixed by the council which meets each
day at the Treasury (disregarding the
value Of the dollar in foreign exchange)
and the daily prices of cotton, wheat
and 80 stocks.