Evening star., 1938-02-20

sAHs~~A~S w OAAS ASOSA04 0ONNA4Hy tAAe6, WHICH
are income taxes on all workers, the neces-
sity Of large public borrowing was dwin-
ding, when the present business recession
developed. Instead Of borrowing from the
banks and capitalists, the Treasury has
been borrowing the accumulating Social
Security reserves as provided by law.
Eccles Thinks Its Wrong.
Because of the present depression, Chair
man Eccles thinks this is Just the wrong
policy for us to be following now. Mr..
Eccles' own theory he describes as the
compensatory" principle of Government
finance. When business is bad, he says,
the Government should spend and when
business is good, the Government should
reduce its expenditures
In 1896 the Government spent about
$500 million dollars more than 1t COL
lected, due largely to soldiers bonus pay
ments of 1000 million dollars. Then, in
1887, during IL months the Government
spent only $50 million dollars more than
1t took in, according to Mr. Eccles. 1T
certainly would seem that it would have
been better If less had been expended in
1896 and more in 1897; in other words, If
in 1896 while credit was expanding and
private activity was under way, there had
been some lessening in Government ex-
penditures, then if in 1887 the Govern
ment had been prepared to increase the
contribution to the community to offset
the decrease in private spending"
S0 Hier1cSipo in, To =
means of relieving unemployment, Chair
man Eccles outlined the advantages he
saw in a policy Of liberalization Of gold by
the Treasury, meaning by "desterilization"
the depositing of that gold with the Re-
serve System and the expenditure by the
Government Of the resultant balances set
up IN its bank accounts. To use the
sterilized gold as means Of buying back
the Government securities which were
originally issued would not, Mr.. Eccles
argued be as stimulating to business as
would be its use for expenditures. II the
Government spent those funds, they
would then go out throughout the country
and would become increased deposits in
the banks. and they would also increase the
SASe"o ASSNA 'So ~ WOUlu DC lns
fiationary. At least, it would be anti-de-
hationary =. billion dollars Of
increased spending, if it worked quickly
enough, and went into consumer buying
power, would act as very great stimulus,
in my opinion, and would tend, think, to
stop the recession"
Foreign Wants Anticipated,
That, in q nutshell, is Mr. EccIes' view
But Mr.. Morgenthau has in mind the day
when foreigners will come to us and say:
Uncle Sam. I'd like some Of my money back,
and in gold please" II the gold has been
put into the banking and credit system
and is then withdrawn for payment to
foreigners, credit will tend to be con-
tracted, and we will experience q measure
Of ''deflation." So the Secretary wants to
keep that nest egg of 1920 million dollars
Of sterilized gold for such an emergency.
1t is thus evident why the latest gold
announcement represents q compromise
between Messrs Eccles and Morgenthau.
The 1920 million dollars is not being de-
sterilized as Mr.. Eccles apparently wanted,
neither In whole nor in part. That nest
egg remains secure. But, with regard to
future gold acquisitions, whether from
abroad or from our own mines, the steril-
ization policy has now been abandoned
to the extent of 100 million dollars per
three-month period. Should more than
100 millions dollars of gold per quarter
come to the Treasury it will be sterilized.
But anything less than that will be al
lowed to become bank money. 1t will be
added to the credit base"
Under Private Ownership.
The future gold inflow up to 100 millions
per quarter, please note, will represent
balances belonging to private persons, not
to the Government. Their expenditure or
investment is therefore not directed by
Washington, but by its private owners. Any
foreign demand for gold will continue to
be met out of the present 1,220 million
dollars of sterilized metal just rs if there
had been no conferences between Mr..
Eccles and Mr.. Morgenthau. If Mr.. Eccles,
then, is to get his billion dollars of in
creased spending. quickly it seems he will
have to try another avenue Of approach.
Do not conclude from this that We
Americans are done with. pump -priming"
apd with shots in the arm" The pres
ent modification of our gold policy, at =
time when bank reserves already are ad-
mittedly very adequate, Is described as
psychological" in purpose. But If busi-
ness still doesn't soon improve, II unem-
ployment drags on and increases, people
who vote will demand something more
tangible than an announcement that the
Treasury is again letting foreign and do
mestic gold sellers deposit their funds in
New York as Of yore, without counter
balancing their action. In other words,
the latest gold move is not itself highly
significant as imitation. It is more signifi-
cant as reminder that there are inf1a-
ton groups who require appeasine.
Seek Cheaper Dollar.
For example, that private group, the
Committee for the Nation, which was 10
influential in bringing about the increase
In the price Of gold in 1854, Il again
soliciting the ear Of Congress. It IL sup
porting the resolution Of Senator Elmer
Thomas. who wants not only complete re-
lease OF all the sterilised gold now on
hand, but further increase In the price
OF gold and Z cheapenirg of the dollar.
This group wants imitation. It wants
prices to 60 up. It argues that when
prices 60 up unemployment is reduced and
new jobs are made.