Evening star., 1936-03-01
BY NEIL CAROTHERs.

BY NEIL CAROTHERS.
Professor of Economics. Lchigh University.
- ONE cynical person has said
that political scientists are a
group of men who have been
- trying for 2,400 years to define
"the state" but have not done 1t yet.
The economists. of course. are not SO
bad as that, but they do have their
troubles. One of them Is the defini-
tion of imitation. Anybody can deflne
electricity. but nobody knows what it
is Imitation is just the other way
round; everybody knows what inna-
ton is, but nobody can define 1t. II
Won do not like the definition sug-
rest here. that is all right with me. !
will not like yours.
This may appear to you to be typ
ical economists hair-splitting. A man
suffering from prickly heat does not
spend much time trying to denne IT,
He is too busy. Let's say that innation
Is merely a sudden and violent rise 'oI
the price level. In all history serious
imitation has come through the issue
of irredeemable paper money by gov
ernment. Imitation may come through
credit expansion, either engineered ny
government or created by prlVateiy
owned banks when Government neg
lects to control them. but no natlon
has ever vet been gutted by credit in
f1ation, or ever will.
The reason for this is simple. There
is some limit to imitation through
credit expansion. There is always
some limit set by the available volume
of reserves in gold. Banks are held
back by the necessity of cashing
checks. They are held back by the
danger of losses on loans. They are
in some degree held back by law and
by common sense-although this
factor did not provide much protec-
ton for the Middle Western banks
that lent 500 an acre on farm land
worth $50, went down like ninepins
and then blamed their troubles on
the Hoover administration.
Feverish Price Rise.
We shall define imitation as fever
ish and unnatural rise of prices due
to morbid condition in currency and
credit, and further, we note that the
overwhelming and capital destroying
inflations have always come from the
issue of irredeemable paper money
| by governments The notes do not
| have to be direct issues of the Federal
Treasury. They may be issued by a
| governmental bank or central bank
! dominated by the government. The
| Federal Reserve Banks could under
present laws flood this Nation with
imitation through paper money, with
out ever ''greenback" being issued
from the Treasury.
No reader of this newspaper needs
to be told what a really drastic infla-
ton does. 1t goes through the eco
nomic body like fever. 1t reduces
the value of wages. 1t wipes out saw
ings and life insurance. 1t eats up
the life savings of the old. 1t de-
stroys wills, inheritances, trusts, en-
dowments, universities and hospitals.
| This writer once received letter from
| Germany on the back of which was
pasted a long strip of paper, the strip
covered with stamps. The value of
money was going down so fast that
the post Office could not keep up with
it. They could set new postage rate
every morning, but they could not
print stamps fast enough. The rise
in postage rates measured the daily
destruction of the savings and ac-
cumulated wealth Of the whole Ger
man people.
What the Record Says.
| Let's look at the record 1t in
wolves some statistics. They are dull
things, but if you refuse to consider
them you will be like our Government,
full Of ideas but somewhat Indifferent
to facts. In the Spring of 1888 our
Government confiscated all the gold
in private hands. repudiated the gold
clause and established an irredeemable
paper money policy.
In October OF that year it embarked
on a project that was a combination
| of comedy and tragedy-the gold
purchase program. This project de-
serves a tribute that apparently no
one has paid. Before it was under
| taken economic historians thought
that every form of money juggling,
debasement and adulteration the hu-
man mind could devise had been
tried in the 1000 years between Ham
murabi and Ponzi's italian exchange
trick. This was new. It worked in
an astounding fashion. It had no
effect on the value of money. But it
told the shrewd exchange operators
here and abroad that the Government
was going to devalue the dollar, and
they very promptly and very profitably
sold the dollar short, down to the
value they anticipated. When the
dollar reached the point the exchange
market thought was the most likely
value, the Government devalued. This
was at the end of January, 1884.
The New Developments.
Since then there have been further
developments. In 1884 the Govern
ment made its final ignoble surrender
to the silver wolves. Since then it has
been buying arbitrary amounts of
useless silver bullion, piling it in the
vaults and issuing silver certificates
against it. If we were on a gold
standard these certificates would be
debased fiat paper money, with a re-
serve behind them of about third of
their value. Since we have no money
standard, they are just part of the
floating mass Of currency.
In the course of the three years
since March. 1888, the Government
has added some $4,000 900 900 to the
public debt, already considerably in
creased from the low point of 1880
by the preceding administration. This
debt has the net effect Of increasing
the deposits of our 10000 private
banks. thereby increasing the possible
tiles of credit imitation.
Furthermore, the Government con-
1