The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1933-06-07

t hese three / WS MAz
months we have IN mn
seen the most i'm ~
pressive signs of t
recovery since the
beginning of the Lippmann
depression.
Now obviously it can not be
maintained that because two things
happened at the same time. they
are cause and effect. There are very
distinguished men, including the
leading financial writer's in the New
York newspapers, who maintain
chat the recovery was due to come
anyway, and that the currency
tinkering' has had nothing TO do
with it. This argument, I confess,
does not impress me. 1t may still
be true, however that the recovery
we are having would have come
without tinkering with the currency.
But the fact is that it has come
while the dollar was being tinkered
with.
There are other writer's who
maintain that the monetary meas
ures are producing an effect, but
that the effect is inherently bad.
They say that the rise in prices and
the increase in orders for goods is
the result of a fear-a fear of infla-
ton.
They say also that fear is a bad
foundation for business, which of
course it is. This argument seems
to me to be worth careful and con-
tinued consideration.
TTOW does one determine what
4 Il motive actuates millions of
peoples in the endless number Of
transactions which are carried on
every day? Those who say that fear
is the motive are relying, it seems
to me, upon two forms of evidence.
They have read in the books that
when a government starts to tin
ker with the currency it is on the
road to ruin, that appreciated money
almost inevitably becomes worth
less, that imitation is uncomfortable,
and that therefore, while fools re-
.ioice in the early stages, wise men
see and dread the impending catas-
trophe.
Being thoroughly convinced that
this is the revealed truth in mon
etary matters, they themselves feel
fear, and assume that fear must be
pervading all the prudent men
everywhere.
BY all orthodox theorizing, if
fear of imitation is the dominant in
fuenCe, men ought to be selling
bonds and transforming the pro-
ceedS into equities. A rising bond
market inspired by fear of imitation
is an absurdity. For bonds are
bought by the most prudent and
conservative investors, and if it is
true that the departure from the
gold standard and the depreciation
of the dollar have been the wild,
silly, dishonoraDIe and dangerous
acts some think they are, the bond
market should reflect that judgment.
Fear for the currency would in
crease commodity prices. 1t would
increase common stocks But II
certainly would not raise bonds.
ATOW, bonds have been rising
~ while the administration has
been tinkering with the currency.
Let up look at the figures in
Moodys tables of bond prices,
which are based on average yields
of 100 domestic bonds.
Two years ago. on June 3, 1881,
prices stood at 1925 A year ago,
on June 2, 1882, they had fallen to
5915. On March 8, as q result Of
the rally last summer, they stood
at 1887.
In other words. taken as whole,
bond prices are practically back
where they were VI the early stages
of the German crisis of 1881. They
fell to their lowest point while we
were on the gold standard.
They recovered considerably,
while we were on the gold stand
ard. They declined once more
while we were on the gold standard.
And they have been rising steadily
since we have peen off the gold
standard.
Since April 81, when we formally
abandoned the gold standard. they
have risen from TACT to 1887, an
increase of 10 per cent. 1t does not
look as if adherence to the gold
standard protected bonds or that
departure from it necessarily in
iured them.
ATOW, the most interesting part
~ Of this matter is revealed when
these totals are broken up. Ortho-
doX theory would have said that
with a deprecated dollar the spec
ulative and second grade bonas
might rise, behaving much like
common stock, but that the high
est grade bonds certainly would not
be wanted by investors.
Why should an investor want a
bond which can not rise much in
price when the dollar income from
the bond is threatened with de-
probation? Yet We find that the
highest grade bonds which stood at
S6,77 year ago were 1882 last
week. and that since the gold en-
barge the Thomas imitation amend
ment. the repeal of the gold clause
and what not, they have risen from
9778 to 1882.
Are the hard-boiled bankers and
the careful investors, who buy the
highest grade bonds crazy? Or is
it possible that they do not take
seriously the fears which are in
stilled into them by the most
reputable and distinguished finan-
cial writer's?
Copyright. 1881
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