Evening star., 1935-05-15
RESTRAINTS BLOW
TO SOUND DOLLAR.
Morgenthau Seen Overlook
ing Need of Flow of Gold
and Trade.
BY DAVID LAWRENCE.

fully the complacency with which the
New Deal faces its problems and
dilemmas than the way Henry Nor
genthau Secretary of the Treasury,
discusses before a radio audience the
soundness of the American dollar
without making the slightest reference
to imitation or Treasury deficits.
The infiationists have almost two
thirds vote in the House and the Sen
ate. And as for an unbalanced
budget, which has been the principal
reason for the failure Of world cur
rencies to remain sound, the latest
figures show that public spending Is
materially increasing the size OF our
public debt without any revenues be-
ing provided to meet these eXtraor-
dinary expenses.
Mr.. Morgenthau's speech is gen
orally regarded here, however, as
splendid defense of the administra-
tion's monetary policy and as being
useful in the sense that it emphasizes
once more the Importance of foreign
trade and stabilization Of world cur
rencies.
What the Secretary says about the
growth of industrial exports will re-
open the controversy as to whether
this came about through devaluation
of the dollar or through the improve
ment in purchasing power In countries
like Argentina and Australia, where
Agricultural prices, especially wheat,
have risen due to drought conditions
in America.
Export Problem Lingers.
The total export trade Of the United
States has not improved as much as
might be expected under q devaluation
policy and the reason Is that foreign
countries have learned how to onset
the effects of currency wars by I'M
posing embargoes and quotas.
To the extent that Mr.. Morgenthau
indicates that America doesn't want
to engage in any currency war and
wishes sterilization at the earliest
practicable moment, his address Is OF
world wide significance.
But stabiliZation has always been
a matter OF achieving q certain parity
of prices in a given country Is re-
lated to other countries. The rise in
commodity prices abroad recently,
showing q recuperation in economic
development, has been q most en-
couraging sign And when once the
United States agrees that restrictions
on the free flow of gold and COM
modities must be lifted and that other
81 fnnnadi.
ments to the interchange OF goods
and services, real progress toward
world recovery may be anticipated.
The argument made by Secretary
Morgenthau about the huge gold and
silver reserves Is not likely to be re-
ceived as q convincing explanation OF
our Governments ability to support
the dollar. This IS because the Treas
ury insists on locking UP the gold and
as for silver it has been found difficult
to force it into circulation in America.
In other countries as silver prices
have risen, the silver coins have been
Withdrawn from circulation and in
Austria there is even talk OF sub
stituting nickel for small coins.
Until the world decides to en-
limited and its value will never cor
respond to the arbitrary levels fixed
by the American purchase policy.
Meaningless Protection.
The reason why Mr.. Morgenthau
felt it necessary to answer the critics
who say the gold bullion we hsve Is
sterile is that the Treasury refuses
to permit a policy Of ccnvertibility or
redemption. Hence, as a protection
against imitation, the gold supply is
meaningless. Once currency IS issued
in large amounts to pay the expenses
of government or once notes or bonds
without interest are issued, the ques-
ton of what Is really back of the
money or the bonds will be whether
the Government will allow the gold
In its possession to come into cir
culation to back it up.
Paper money is faith money, and
II there's $4,000, 100000 of gold bull
lion in the Treasury that cannot be
used to redeem paper money, It Is as
sterile. from money viewpoint, as so
much zinc or lead or copper.
To permit redemption today, how
ever, might lead to boarding because
there is no balanced budget in sight
and no constructive program for re-
employment or the horizon. Hence
relief expenditures will continue in
definitely. So long as public spending
of borrowed funds or inflated currency
Is used, no treasury anywhere, Of
course. would care to permit gold re-
demption.
The soundness of the American dol
lar, therefore, depends not, as Mr..
Morgenthau told his radio audience,
on the large amount of gold and silver
available in the vaults of the Treas
ury, but upon the extent to which
Patman bills and work relief projects
with billions of dollars borrowed each
year ultimately bring about q situa-
ton of uneasiness and uncertainty.
Sterilization of world currencies de-
pends on balanced budgets and sound
economic policies within each Of the
principal countries Of the world. While
psychologically 1t is excellent to preach
the soundness of the American dollar,
the fact is Mr.. Morgenthau ought to
be preaching it on Capitol Hill and in
those precincts of the New Deal where
restrictive legislation, actual and pro-
posed, Is interfering with and retard-
ing that larger velocity of transactions
and expanded trade which Is the true
basis of economic recovery.
Copyright. 1880