The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1934-09-20
1NsTALLMENT TEN

INSTALLMENT TEN
A S regards the amount of ac-
IA tual initiation as distinct from
government borrowing: Although
many people believe that Mr..
Roosevelt has been initiating fast
ever since he came into Office in
March, 1888. this is not the case at
all. Indeed, until January, 1884,
no actual initiation even of bank
credit had begun.
Although he had talked much Of
initiation and obtained powers to
initiate, in practice he did not, un-
I'll 1884, expand either the note or
bank deposit currency. He merely
devalued the foreign exchange
value of the dollar and widened
the internal gold basis for bank
credit. Neither of these things is
actual initiation. although they
pave the way for it.
AT the beginning of 1884, how
ever, Mr.. Roosevelt actually began
to initiate bank credit with inten-
Sity.
Total deposits of the reporting
member banks have in the last six
months risen from $4,000, 100000
to $18,4OO, 100000, j. e. 1872 per
cent; and net demand deposits
from $4,000 100000 to S12,5O0 0OO,-
600. also 1872 per cent. This last
figure implies that every bank
depOsitor in the country, taken on
an average, now has Is per cent
more idle money on current &C
count in his paSSbook than he had
in 1888, and since this has not
been Cancelled out by reduced
note holdings, bank balances are
already Is per cent more redun-
dant.
Moreover, since Roosevelt is
soon likely to increase his borrow
ings again to between S400 000,-
600 and $500, 100000 a month, this
inflationary redundancy of bank
deposits seems bound to go on in
creasing, especially as it would be
no easy matter for Mr.. Roose-
welt or a succeeding President to
stop the public works now under
way.
Indeed, if borrowing is contin-
ued at the above rate land the
existing program of public works
makes this probable for time) net
demand deposits will have grown
by about $4,000, 100000. or 40 per
cent more within the next year,
even if industrial non-govern-
mentaD borrowing from the banks
does not also increase one iOta,
and thus still further expand the
credit currency. In fact. however,
industrial borrowing will also in
crease as soon as government bor-
rowing and initiation has Stimu-
lated general industry, and bank
credit currency will be expanded
still further.
INDEED, this gathering weight
il of uuantitative credit initiation
must eventually set in motion a
boom.
People, it is true, laugh at
Roosevelt at present, and say that
initiation has already proved a
damp squib. But that is only be-
cause they have failed to appre-
ciate:
ID that no note initiation has
yet occurred at all; CID that no
bank-credit initiation occurred I'M
til 1884; Gid that it takes time
to get public works under way;
and QV) that there is normally a
lag between bank balances being
inflated Cby government borrow
ing) and their subsequent influ-
ence on trade and prices.
Soon, however, those who now
scott prematurely at the failure of
the monetary experiment" which
they boast of having all along
predicted, will have to change
round and occupy their minds in
explaining how either, after the
first rapid flareup. activity will
die down. or alternatively how the
inflationary boom will eventually
get out of control!
Mr.. Roosevelt, however, probably
has got some plan for this prob
lem. If relation shows signs of
moving too fast he will doubtless
start borrowing from the public
to pay off bank loans, thus reduc-
ing the size of bank credit infla-
ton. He will use tax revenue to
pay off banks loans. C'EXceSs
profits" taxes must be expected as
soon as the boom has got well I'M
der way.
If need be. he may-if gold ex-
ports, resulting from a higher in
ternal price level, do not them
selves set in motion a contraction
of credits-even 60 so far as to
lower the price of gold and/or
raise the legal bank-ratio require
ments, thus leading to an anti
inflationary contraction of bank
credit. For he will certainly not
permit, if he can possibly help it.
an uIlCOllllOlleQ ClcNll anu lOIC
initiation Of the disastrous type
which occurred in Europe in the
early l920s.
=
+ MIGHT here add that in my
Il personal view Roosevelt. by de-
Gliding on credit relation "on gold'
instead of 'on paper" is running
more risk of letting the relation
get out of control than if he had
STAYED of gold and only issued
extra notes against resalable as
sets like commodities, which as
soon as prices begin to rise too
fast. he could rapidly resell to the
public. thus simultaneously retir-
ing currency and also depressing
prices.
Fate cor Warren). however, has
decided against this policy; and
this may lead. despite the Presi-
dents intentions. to a boom "on
gold" which eventually gets some
what out Of control. He may, in
fact. find difficulty in stopping the
rise in prices after it has reached