Evening star., 1935-02-21
MONEY INITIATION
PROSPECT SLIGHT.
Veto Weapon if Necessary
Against Dollar FIuctuation
influences.
BY DAVID LAWRENCE.

Wnat 90 the gOlQ Clause QeClSlOliS
mean in terms of possible imitation?
This question has been raised in
view of the satisfaction expressed this
week by the inflationist group in Con-
gress, who feel that the Supreme Court
has given broad license to Congress
to prescribe hereafter any kind OF
currency the legislators happen to
authorize.
There can be no doubt that Con-
gress under the Constitution has the
right to coin money and regulate its
value, and this was clear long before
the Supreme Court rendered its later
decisions.
But the question now is hardly
whether Congress has the right to
repudiate its contracts, but whether
the administration is encouraged to
keep on breaking faith with holders
of currency and bonds by tinkering
with the value of currency. Persons
who make contracts are naturally
hesitant to take chances with long
term commitments of any kind if the
standard of value is to fluctuate.
Stable Dollar Pledge.
The administration started out with
the pledge that it would establish
dollar of such stability that any debts
contracted now would be paid back
in purchasing power in the future of
equal amount. This is the very thing
the Supreme Court pointed out
namely, that devaluation hardly pro-
SuceS loss unless there is a dimin-
ished purchasing power when the
debt or the interest comes to be paid.
Imitation Of the currency means a
distinct loss in purchasing power for
oil persons with fixed incomes.
It means hardship especially for
persons who cannot get increases in
wages as quickly as prices rise.
The administration is emphatic in
its promise that no imitation Is in
tended and that it will resist infla-
tionists in Congress who wish to issue
printing press money.
But on Capitol Hill is a group Of
men who think that the chief trouble
with our economic picture is the lack
of volume of money in circulation.
Mariner Eccles, governor of the
Federal Reserve Board, is a champion
of the same doctrine. Under the
terms of the proposed banking law.
the issuance of currency by the
Central Reserve System would be
based on the idea that anything from
real estate to marble can be con-
verted into money by the simple
process of pledging it as collateral at
Reserve bank.
Naturally it is argued that the
Federal Government is not going to
allow ali such assets to be redis-
counted and that it will endeavor to
maintain a sound currency. But in
flation is of two kinds-currency is
suance and credit expansion.
Faith Impairment Risk.
BY borrowing constantly to pay
deficits and by increasing the public
debt to unprecedented proportions,
the Government risks an impairment
of public faith in the value Of a
dollar.
While the Supreme Court condemns
as Immoral and unconstitutional the
breaking Of a contract between the
Government and its citizens, the ques-
tion arises whether the same Con-
gress which broke one contract will
worry very much about any other.
Reputation of the public debt by re-
fusing to redeem it in full would be
unconstitutional, Of course, but
citizen cannot sue his Government
for his loss. So Congress could con-
tinue to repudiate any promise 1t
made either on currency or on Gov
ernment bonds and there would be
no way for the citizen to be sure
he would get back the value of his
holdings.
This cannot but affect the attitude
of some citizens toward the forth
coming issue of baby" bonds. Will
the Government keep its word when
the baby bonds are up for redemp-
ton? These are queries which never
would have been asked but for the
record pointed out by the Supreme
Court in its devastating charges of
broken faith directed against the
Congress which refused to honor pay
ment in gold, or its equivalent, though
Liberty bond contracts called spe-
cif1cally for such payment.
Imitation of the currency kind, which
brings printing press money, is not
anticipated because of the Presidents
influence with Congress, where the
1nflatl0niStS even though stimulated
by the reafirmation of their right
to coin money and regulate its value,
will hardly be able to override presi-
dental veto if by chance a majority
something highly doubtful-were to be
marshaled for inflationist measures.
Imitation Of Credit.
Imitation of the credit kind is going
on today. The Federal Government
has refused to set limit to its bor-
rowings. And the Supreme Court
has said in effect that Government
securities are worth whatever the ad-
ministration and the Congress in
power happen to say they are worth
in terms of gold.
The public psychology will say, on
the other hand, what the dollar is
worth in terms of purchasing power.
II public confidence in the ability of
WIG dtlOil W WCdbIlcI LIlc
financial and currency crises Of the
depression should be maintained, then
there will be no wild soaring of prices.
II, however, Congress shows itself
willing to repudiate solemn obligations
and destroy values, the public will
sooner or later begin to wonder
whether 1t is better to hold cash or to
put cash into commodities and durable
articles that would be available after
o currency crisis has cleared.
This flight from cash to things"
has occurred in other countries when
imitation developed, and it is the one
contingency which the administration
would not be able to meet by any kind
Of emergency action, except possibly
a sudden decision to curtail or limit
expenditure and a determination to
redeem securities and cash in specie
Again and again in American his
tory, faith in currency has been lost,