Evening star., 1937-07-11

ments OF Great Britain and the United
States are apparently agreed to steady
the exchange value Of the pound ster-
ling at, say, between $485 to $4.95
per pound.
Both nations have controlled cur
rencies. The chief difference is that
with us the price of gold is fixed, and
any gold offered to us at the an
nounced price of $35 per ounce is
automatically bought by the Govern
ment. There is no limit as to amount
In contrast, under present policy, the
British authorities buy only as much
gold as they wish.
Defining Stability Difficult.
Now if you were asked to vote on
whether or not you favor the general
principle of currency stability, the odds
are overwhelming that you would vote
yes But if you are asked to define
just what you mean by stability, you
may be little confused. What
every one in business and every one
| dependent upon salary or a fixed in
come certainly wants is assurance that
the purchasing power Of the dollar
will not decline or f1uctuate widely
That sort OF stability benefits the
greatest number.
But so great is the traditional re-
spect for gold and silver that many
persons conceive of stability only in
terms of fixed ratio between the
paper dollar and a hard metal. In
stinctively mistrustful of paper money
or managed currency" they feel re-
assured to know that in some way
the dollar is linked to gold. A fixed
link, fixed price of gold to many
persons seems synonymous with
stability of the currency. To them
hard money is real money and SO
they favor stabilization in terms OF
only hard money.
This, however, is a mistake. While
there are, to be sure, powerful and
persuasive reasons for employing gold
| in the modern monetary systems it is
an error to suppose that the employ
ment OF gold or link with gold is q
guaranty that the purchasing power
OF our currency will remain stable at
home. Gold, although rela lively SLOW
to change in purchasing power, is not
fixed measure of value, even without
alteration Of the monetary unit.
Currency Managed for Years.
Against intrusting currency man.
agement to political parties there are
very sound, good arguments. How
ever, we have had currency and credit
management" for SO many years, in
varied degrees, that it would be de-
luding ourselves to talk Of abandoning
it. Such management has distinct
dangers, particularly in an immature
country like ours, where selfish pres
sure blocs brazenly ply their trade in
the midst Of crises. On the other hand
money management has many logical
features as we'll
The fact is that, in our attempt to
compromise with tradition and exper-
iment, we today have hybrid cur
rency system, an automatic framework
with a managed mechanism. Out of
respect for the past, we have decreed
flXed price OF gold, and as a conse-
quence find ourselves absorbing the
metal far beyond the most farfetched
conception Of our requirements. To
keep the surplus gold from entering
our credit base. the hard-up currency
managing Government is now buying
up the inf1owing yellow torrent with
borrowed funds, raised by selling
bonds. Since this palliative policy was
instituted last December the public
debt, from this one cause alone, has
increased at the annual rate of s2,00O,-
100000, a 6.4 per cent increase, per
annum.
While Washington is ferventlv but
vainly hoping that the gold inflow
Will somehow taper of, South Africa,
the U. S. S. r.. Canada, Australia
and other foreign countries, and, of
course, American miners, are fever
1shly digging new gold to sell us, while
hoarders everywhere are emptying
their vaults and stockings to send us
the contents at s35. plus interest.
Interest Cost Huge.
Interest on the public debt is con-
suming we'll over 10 per cent of our
100000, deficit" budget. Yet
every day incoming ships bring us
more of this "red-ink" metal. Para
doxically every ounce of new gold i'm
ported becomes liability to the peo-
Pile of the United States.
Then why don't we change our
policy? Why don't we stop buying
tons OF unneeded bullion, or at least
lower the price We are offering to pay
Tor 1t? Various reasons suggest them
selves. International action is hard
10 obtain. Unilateral action by the
United States on gold would be certain
10 increase public disquiet because
1orelgn exchange rates would react.
Inc dollar would rise in terms of most
1orelgn currencies, and the latter in
terms of the dollar would decline.
lhey would become Cheaper"
Ihls may not seem calamitous. but
II happens that quite large section
OF public opinion would object to see
ing the pound sterling cheaper. That
development would mean that we
could-tarifts permitting-buy Brit
Ism goods more cheaply and, perhaps,
use up some. of the excess gold piled
up IN Kentucky. Many of us who
can't now afford it would be able to
take trip to England or at least buy
Birmingham razor.
Yet such a possibility would strike
quite few Americans as dead
wrong. These would much rather
sell than buy. They seem to feel that
the only object in producing goods is
10 sell them, and overlook what hap
pens to the money received. When
you work all week at a job and at
the end receive your pay you natu.
rally have your mind pretty we'll made
up as to what you'll do with the week,
pay. It's spent before YOU get it
very often literally spent. The eco
nomlcs" OF an individuals income need
no demonstration. But with & mass
OF individuals it is not so simple.
Have Debtor Psychology.
Here We are as Nation, working