Evening star., 1933-12-19
BY DR.. O. M. w. sPRAGUE,

Professor Of Banking and Finance. Harvard
Business School.
TINE influence which the devalua-
ton of the dollar would exert in
bringing about a trade recovery
Il and a rise in prices is a problem
which bristlesCwith difficulties.
Commonly in the past, devaluation
has come as the final stage in the re-
turn of a disordered currency to the
gold standard. It has been the statu-
tory recognition of a situation in which
prices have advanced far above the
level which could be maintained If the
old parity were restored.
In our case, II we devalued the dollar
to the extent of its present depreciation,
we should be acting on the assumption
that devaluation itself would speedily
bring about desired upward movement
in prices. Only after prices had ad-
vanced would the revalued currency be
in equilibrium with the currencies OF
other countries.
Since tire dollar, measured in foreign
currencies, is now clearly undervalued,
we may rule out of the realm of prac-
tical politics the possibility of revalua-
ton in concert with other countries. and
in particular with Great Britain.
Must Act Alone.
When at the beginning of the year
the pound was quoted at S3.40 to the
dollar, there was no clear evidence that
it was undervalued. A slightly higher
or a slightly lower rate might, with
equal probability, have proved to be an
equilibrium rate If this country had not
departed from the gold standard.
Since that time prices have indeed
risen somewhat more rapidly in the
United States than in England, but they
certainly have not provided basis for
an equilibrium rate for the pound OF
anything approaching SIS. to say MOTH
ing of a higher rate. For this reason,
and because of the evident indisposition
of Great Britain definitely to stabilize
even when the pound was in the vicinity
of $3.50 to the dollar we may reason
ably conclude that if We are disposed to
devalue the dollar now it is a course
which we must take unaccompanied by
similar action elsewhere.
The necessity for taking independent
action presumably will be regarded by
many as sufficient reason for taking no
action whatever at the present time.
Devaluation here, which might be fol-
lowed by much greater devaluation else
where than would correspond with ex-
isting valuations of various foreign cur
rencies, is a risk which few in this
country would be prepared to envisage.
Difficulties Ahead.
Such action on the part of foreign
countries will be unavoidable unless
prices in this country were to rise
sharply after the revaluation of the
dollar Otherwise foreign countries
would find themselves in disadvan-
tageous trading position. Moreover, the
devaluation of the dollar to its present
state of depreciation will present serious
financial and monetary difficulties.
On the assumption that it is believed
that devaluation will hold and not be
abandoned for further depreciation,
American capital, the outflow of which
has largely contributed to the existing
depreciation, will begin to return. The
dollar will be decidedly strong involving
imports of gold to New York of such
magnitude as to threaten a departure
from gold by those countries that still
maintain themselves on the gold STAN
dard. together with decided decline
of those currencies that are on a paper
basis The alternative would be the es-
tablishment of huge equalization fund
and the acquisition of undesirably large
amounts of foreign currencies.
1t has been insisted more than once
by President Roosevelt that he Is url-
willing to stabilize the currency until