Evening star., 1936-02-02
BY JOHN II. CINE.


The printing press inf1ationists are
on tne march again.
Drawing their strength from three
distinct sources, the fiat money men
in C.ngl ess are preparing for a new
assault on the principles of Sound
financing"
Taxing the S2,20O,000,0OO soldiers
bonus obIigation as his test, Repre-.
sentative Patman of Texas has pleaded
the case OF imitation with sufficient
ferver to convert the supporters of the
$1,000. 100000 Frazier-Lemke farm
mortgage bill and those who would
initiate the currency to finance the
new farm program. estimated to cost
$400 100000 year.
The Patman proposal, which Sena-
tor Thomas of Oklahoma says he
will espo,Ee in the Senate, Is simple
on its face.
The Treasury has some $10,200,-
100000 in gold reserves. says Pat
man. and only about SIS, 100000 900 in
currency outstanding. 1t could issue
$4,000, ,000,CG0 in new currency and
still have 100 per cent gold back
ing. Why not start up the presses
and pay the bonus in nice, new green
backs? That, in brief, is his pro-
posal.
Opponents See Ruin.
Patman's opponents attack his plan
on the ground that it is the start of
the vicious spiral of imitation. a pre-
lude to an era of skyrocketing prices
accompanied by more and still more
fiat money until the inevitable hour of
economic ruin is reached Their pro-
posal is that the Government should
borrow the necessary money and
amortize the debt through increased
taxes.
The reply Of the avowed inflation-
lists is that governmental borrowing
in excess of its income leads to the
same result as the printing of green
backS-both create an obligation with
out providing the means of paying it..
And in addition, they contend, the
Government must pay interest on its
borrowings, an expense eliminated by
issuing new honey.
The premises on which the Pat
man argument for new money is based
is erroneous, it is pointed out, in that
the Government does not have $4,500,-
100000 in surplus gold reserves in the
Treasury. So far as the Federal Gov
eminent Is concerned. only the $685.
OO0,00 In gold in the Treasury's gen.
eral fund is available as q basis for
new currency. The rest of the sup
posed surplus is being put to other
uses.
Fear Infiationary Process.
However, the fact that the Govern
ment has only about $500, ,O00, 900 in
gold for use as base for new currency
Is not considered a serious drawback
to the proposal to print money for
paying the bonus. II this is not q
sufficient reserve in itself, economists
believe, it could be increased by the
addition of silver or even by q fur
ther revaluatior of gold. The real
danger, they believe, lies in stopping
the inflationary process once it gets
under way.
There is one feature Of the present
banking situation which is new in the
history of depressions and demon
strates the futility Of trying to stimu-
late trade by attempting to force
money into circulation.
The Federal Reserve member banks
now have excess reserves of approxi-
mately $500 ,000, 900, and the Federal
Reserve and its member banks have in
their vaults just about twice the re-
serves required by law.
The Federal Reserve has always had
excess reserves, but the surplus in the
member banks is child of the depres-
sion. Nothing like it has been seen
before. In 1881 the member banks
had virtually no surplus reserves, but
they have increased steadily as q re-
suit Of the efforts to enlarge bank
credit, accompanied by failure of the
public to make use Of 1t. The Govern
ment could pump the money into the
member banks, but no further, and
the surpluses have simply piled up.
Surplus Would Be Boosted.
This leads to a consideration Of
what would happen If two or three
billion dollars should be run OF the
presses and turned over to the veter-
ans. Assuming there were no other
changes, the probabilities are that
there would first be q wave of retail
selling. The seller would then deposit
the money, but his bank would not be
able to count 1t as . reserve. II the
banker couldn't count It - reserve and