Evening star., 1934-02-25
Continued From Third Page.)

(Cont1nued FROM Inlro PageD
cedent In history or recognition IN
| theory.
Like a three-legged calf, or any
other lusus naturae, the devaluation
law dehes explanation. II Is TO be ad-
| ministered in secret. Some authorities
| say that it establishes a modified
! gold bullion standard" others that it
Is kind of commodity standard. The
! fact Is that 1t leaves the country where
it has been since last March-on an
/ irredemable paper money standard
subject to unpredictable and un-
announced administrative operations,
although under the law it is easily
possible to establish a genuine gold
bullion standard, and the first steps
taken have been distinctly in that
direction.
Limit on Manipulations.
| Admittedly it does give some fixed
limitations to the range of manipu-
lation. 1t does give promise of ward
! ing off the dreaded resort to paper
money imitation. In 1t there are un-
doubtedly indications that we are
:
currency uncertainty and disorgani-
zation. The reaction of relief evident
in financial circles suggests the feel
ings of the Kansas farmer who
emerges from his cyclone cellar to
/ discover that part of his farm still
remains.
What will happen under the law Is
beyond prediction. The devaluation
level selected by the Treasury-59
cents-is out of line with the actual
value of the dollar at home or abroad,
and this condition pulls gold away
from the already harassed nations of
/ Europe to be added to our swollen
accumulations from war devaluation
and non-payment of gold obligations
abroad
Able authorities have thought that
1t would Immediately drive France
off the gold standard and force Eng
| land to sue for a currency truce. The
general economic effect will be to
encourage exports, reduce imports and
raise the costs of imported goods to
American consumers. How this pres
sure on burdened nations and this
| reduction of an already debilitated
foreign trade are going to aid
stricken world is not apparent. The
only immediate effects at home will
be stimulation of gold mining and
higher price for wedding rings and
gold watches.
Ultimately, however, the effect of
! devaluation will be an artificial in
crease in the domestic price level, to
what point no man knows. The law
authorizes the use of the stabilization
fund in domestic credit operations,
and one critic after another has
pointed ou the possibilities of dan
gerous imitation in this power. But
it is possibility only, and there is
reason to hope that the authority
will be wisely exercised.
One curious development is posi-
BILE. If prices do not rise rapidly, the
huge stabilization fund may be ex-
pended in exchange operations abroad.
If prices do rise rapidly, there inev-
itably, in time will be marked flow
of gold out of this country. There
is an excellent prospect that this
new law will-not Immediately, but in
due time-force a reduction of our
abnormal accumulations. The franz
ers of the measure may have provided
mechanism for a redistribution Of
gold that will permit the re-estab-
lishment everywhere of the gold
standard they have been regarding
as a failure The President himself
has commented on the possibility Of
redistribution of monetary gold
The repeal of the devaluation law,
the stabilization of the American dol
lar at its natural unmanipulated val
ue and the restoration of the gold
standard at that value would, prob
ably, offer the best program for buSi-
ness recovery. But that is out Of the
question. Devaluation is a fait ac-
compIi. The final selection of some
value within the 5000 limits and the
restoration Of the gold standard at
that value as soon as it is practi-
cable would be the next best proceed
ure under present conditions.
| Purchasing Program.
But the Government is committed
to a program of price raising. and it
has repeatedly declared its intention
to keep prices stable The devalua-
ton law permits Treasury activities
with this latter objective in view, and
for months to come there may be all
sorts of Treasury activities aimed at
an adjustment of the price level to
an arbitrary devaluation of the dol
lar. Whether by the time the price
levels are satisfactory to the admin
istration the plans for stabilized
dollar or a commodity dollar or
compensated dollar will be forgotten
is on the lap of the gods.
The monetary program of the last
year has been consistently based on
assumptions that the monetary tail
can wag the monetary dog. 1t starts
with the assumption that rise of
prices is an essential cause of recov-
cry, whereas recovery is an essential
cause of a rise of prices The gold
purchase plan was the offspring of
this assumption. Business conditions
determine prices at home and the
value of the dollar in foreign mar
kets, but the gold-buying program as
sumed that an artificial lowering of
the foreign value of the dollar would
change business conditions at home.
A casual inspection of works on