Evening star., 1933-12-18
Brookings Institution Joins :
Foes of Monetary Program
Formal Statement Questions Theory
Commodity Prices Viii Moue Up,oard
With Increase in Gold Figure
BY the Associated Press,

| BY the Associated Press
| Challenging the scientific validity" OF
/ the basic theory of the Roosevelt none
tary program, the Brookings Institution
has joined foes of the administration In
| fighting the Treasury policy.
! In formal statement yesterday, the
4, institution questioned the theory that
commodity prices will move upward
automatically when the price Of gold Is
| increased.
After an analysis of various factors in
the new administrations activities in
fiuencing prices, the institution reached
two conclusons:
THE first is that no definite, predict
able rise In the commodity price level
| can be assumed to follow a given depre-
citation of the currency. Such rise as
occurs is not general or horizontal In
character, representing en- automatic
adjustment Of all commodity prices to
| alterations in the price Of gold.
THE second conclusion is that. once
| a desired price level has been obtained
| by whatever means, no evidence exists
! that henceforth that level can be auto
matically controlled by altering the
price Of gold"
The Brookings Institution is an en-
doWed organization devoted to "econom-
ic research and the Interpretation OF
current economic problems.
Prepared by PasvoIsky.
| The gold analysis, entitled Current
Monetary Issues" was prepared by Leo
Pasvolsky. author OF various financial
| studies. He was assisted by a committee
| consisting of DR.. Harold G. Moulton
president Of the institution; DR.. Edwin
| n of NJ ~
economics. and DR.. Charles o. Hardy
and Miss Cleona Lewis of the institu-
| tion's staff.
The Roosevelt gold purchase plan in
operation has consisted of the estab-
| liShment Of an arbitrarily determined
price at which the Government buys
| unlimited quantities of domestic newly
| mined gold and gold purchased abroad
Between October 81 and December !
| the domestic quotation was increased
from s3l 666 to S340l, where it has
remained since. Gold purchases In for
| eign markets, negligible until 10 days
ago, have since been increased to the
| extent OF some $4,000 900 or s35,
000, 900.
Outlining the purposes Of this scheme
, the Brookings Critique said:
The new plan is expected to operate
upon the principle of regulating the
commodity price level by controlling the
price of gold Since the country is of
! the gold standard. the American price
| depreciation Of the paper dollar in terms
of gold-that is, by Offering more and
| more paper for gold.
In effect the same result Is expected
to be attained that would be reached
| by a series of legal reductions in the
weight Of the gold dollar which would
automatically raise the price OF gold
The gold purchase plan is held to have
an advantage in that it permits con-
tinuous manipulation Of the price Of
gold and the adjustment of its value
in the light of changing conditions. 1t
Is also regarded as opening the way to
permanent system Of controlling prices
through currency manipulation"
Franc Chosen as Unit.
The study analyZed the consequences
OF the plan as measured by its objec-
| tives. Abandonment of the gold stand
ard, 1t said. left the only way of
measuring the dollars gold worth to the
determination Of its value in terms of
! the monetary unit of some nation still
on gold. For this purpose the institu-
tion chose France and the franc.
For example" 1t said, before the
suspension Of the gold standard by the
United States the amount of gold in
the dollar was 255 times the amount
of gold in the French franc. The dol
lar was therefore worth 25.5 francs,
and, when exchange was at par, was
quoted at that rate in the foreign ex-
change markets. After the suspension
of the gold standard the dollar grad
II r. inc tn rn1a 70
franc. 1t was quoted on November l,
1888, as the equivalent Of only 1868
francs. Since the French franc still
represented the same amount of gold
| as before, the foreign exchanges reg
istered a depreciation of 35 per cent
in the dollar.
"This depreciation Of the dollar in
terms OF foreign exchange was giving
us a rising price of gold. However. it
vas subject to general factors. specu-
lative and otherwise, influencing the
foreign exchange rate and showed sub
stantial fluctuations. This, II was ar
gued. was the result of the fact that
the Government was pursuing passive
policy with reference to foreign ex-
change.
"A continuous rise in the price OF
gold, it was held. could be obtained only
by inaugurating an active policy OF con-
trolled depreciation. Accordingly. as We
have seen. Government monopoly
was set up for the purchase of all gold
newly mined in the United States.
Under this arrangement, the Recon-
Struction Finance Corporation, acting as
the Government agency for this pur-
pose. would offer arbitrarily determined
amounts of paper money for each ounce
of gold brought to 1t.
Success Rested on Purchases.
"Since, according to the theory, the
American price level can be uninter-
ruptedly raised only by a sustained
rise in the price of gold and since for
this purpose a progressive depreciation
of the dollar on foreign exchanges Is
indispensable, the success Of the plan
depended fundamentally upon the ef-
fects of gold purchases upon the ex-
changes 1t was apparently thought
that the mere raising of the price OF
gold by the Government through gold
purchases in the United States would
automatically depreciate the dollar in
| foreign exchange quotations. 1t was
recognized, however, that this might not
prove to be the case: hence 1t was an
nounced that the Government would
be prepared to buy and sell gold in for
eign markets, thereby directly influ-
encing foreign exchange quotations"
The study then turned to an analysis
of the effect Of the increasing r. F. c.
price on the foreign exchange value of
the dollar and found no measurable
pattern of movements resulting.
THE dollar in the exchange markets
has been at times above and at other
times we'll below the r. F. c. price for
newly-mined gold" 1t said, land 1t is
evident that speculative sentiment has
continued to be the controlling inf1u-
ence"
Considerable attention was devoted to
studies of price movements which fol-
lowed the depreciation of the currencies
| Of several nations.
"Great Britain and Sweden aban-