Evening star., 1934-01-16
GOLD STEP DEEMED
MOVE TO STABILIZE.
Business and Finance World
Now Able to Calculate
on Future.
BY DAVID LAWRENCE.

Sterilization has come-1n part. Re.
Valuation has come-in part.
To the extent that both these step'
tend to diminish the amount of uncer'
tainty and place limits upon it, the
United States may be said to have
taken constructive step toward the
ultimate sterilization of it's currency
and, in addition, toward the stabiliza-
tion of world currencieS.
The decision was not surprise. II
had been foreshadowed. But the fact
that it has at last been taken is of mo-
mentous importance. 1t is milestone
In the history of the present depression
The business and financial world car
today make calculations which coulc
not be made before.
1t is true Congress has yet to pass
the necessary legislation, but this may
be taken for granted. Both houses are
ready and willing to follow the Presl-
dents leadership on monetary matters.
Message is Compromise.
There is much to be read between
the lines of the Presidents message tt
Congress 1t is the first document tha'
reveals officially the Presidents none
.tary purposes. The message may be ap'
praised as compromise between ortho-
dox principles and those OF the more
radical group of monetary experts
headed by Prof. Warren. 1t is mid
Gle-of-tnc-roa position. with a certain
amount of flexibility which still permits
the President to go back entirely tC
orthodox principles, II he wishes, ir
the future.
What are, therefore. the points or
which the President conforms to ortho'
doX or the customary thinking on the
handling of gold and what are the
points of departure?
First, the ownership Of gold by the
Government is not new and the lSsu'
ance of gold certificates for bullion in
stead of coin is in line with what L
known as the gold bullion standards Of
Great Britain and France. Even before
Great Britain in 1881 suspended her golo
standard, the United States was the
only country which agreed to redeem
small amounts of the unit of value in
gold of a fixed standard of weight and
fineneSs. So we may say the new plar
Is in accordance with precedent on this
point.
Second, the President requests Con-
gress to place a definite upper limit on
the valuation of gold by statute. This
lis to be at 60 cents 1t means that the
Warren idea of varying the gold con-
tent from time to time by the method
of indeXing or averaging commodity
prices is not to be allowed to apply
to the whole 100 cents but merely to
a 10 per cent margin. There are in
dications. too. in the message that even
this f1eXibility may some day be mar
rowed and fixed weight determined
upon, though it is probable the Presi-
dent will wish to give the Warren theory
a further trial before absolute abandon
ment of the formula. But definite
value is what is normally fixed. A
variable margin is something new In
world currencies, though advocated for
years by men like Prof. Fisher of Yale
Britain.
Sterilization Fund Asked.
Third, The establishment Of an ex.
change stabiliZation fund, with Sufi-
cient money to buy and sell dollars anC
pounds and francs and so on and thu!
steady the foreign exchange market, i!
an orthodox principle. 1t is in use by
Great Britain and France and is neces.
sary to prevent spectators from con.
trolling the exchange situation. 1t has
been advocated for America by the con-
servative banking and financial groups
for many months as necessary steI
before revaluation is completed.
Fourth, The announcement that
America recognizes the importance of a
worldwide agreement creating uni
form monetary policy is Of the greatest
rin hat yIrh
theories we may have about monetary
changes. We shall recognize the fact
that standards must be international
for purposes of settling trade balances
between nations and especially to aio
exporters and importers to carry or
commerce in their daily transactions
This is also an orthodox principle.
Fifth, The recognition by America of
the 60-cent upper limit is in accordance
with tradition, the rule has always been
that devaluation is a ratification of an
existing level. The dollar has remained
fairly steady at so cents for some time
The 10 per cent margin is being re-
tanned for possible contingencieS-re-
taliation in depreciation of currencies
by foreign governments or the poSsibili-
ty that the corresponding policy of the
American Government may cause fur
ther drop in the worlds opinion oi
the gold value of the dollar
The foregoing principles OF none
tary experience have stood for the
most part the test of time. Devalua-
ton of the dollar itself has once be-
fore been tried in the United States
more than a hundred years ago, but
the devaluation then was only about 6
cents, while in this case it Is at least
40 cents and may be more. So while
the amount is unprecedented in
American history, therefore, the prin-
ciple is not.
Hint of Redistribution.
There is hint in the President S
message of d possible redistribution of
gold by international agreement. This
is in line with a recommendation OF
the League of Nations Gold Commit
tee of two years ago and in conform
ity with a speech recently made by
President Nicholas Murray Butler of
Columbia University in favor OF a
central clearing house for gold bullion.
1t means that each nation may place
a certain amount of gold in an insti-
tuition like the Bank for International
Settlements in Switzerland and when
ever there are transfers. for instance
from England to America or vice
versa the exchange would take place
in the vaults of the international
bank rather than by actual shipment
by boat This is desirable because it
represents an economy in time and ex-
pense 1t means that gold can have
more uses, which is only another way
of saying that we will have Increased
the utility of our gold supply-some-
thing which meets the criticism that
credit heretofore has been strangled
by the inadequate amount of gold
bullion available to carry on the busi-
ness of the whole world.
The taking of gold profit is in line
with what France and Italy have done
before. though in each case their CEN
tral banks had a credit with the gov
ernment which was paid off. In
America. the Government is confis-
eating the gold held by Federal Re
serve banks and issuing certificates
for part of the gold and retaining the
,,ro6t in yo1,la ohnya tba old GOLD Oripp