Detroit evening times. (Detroit, Mich) 1921-1958, 1944-05-19
Easy Money.
PoIiCiiesH Hit
BY LEWIS HANEY


Professor Of Economics. y. y. University
The high cost of cheap money"
would make good headline.
This is suggested by the raise
that a big life insurance company
has just been forced to make in its
premium rates. The trend is in
that direction. and in due course
all holders OF life insurance poll
cies will find the cost TO them
Increased. Why? Because of the
low interest rates on government
securities, resulting from the So
called easy-money policy thae has
prevailed in Washington for the
last decade. The low interest
rates prevailing on life insurance
investments make it necessary for
the companies TO build up larger
policy reserves. This causes an
increased cost of insurance.
Perhaps the easy-money policy
is the outstanding point in the
New Deal economics. The reasons
for this should be clearly under
stood by all. They are partly
practical and partly based on the
cries of reform.
The practical argument is that
low interest rates (no matter how
attained) will ~ help the gov
eminent as a borrower, and ~
stimulate business activity. 1t is
argued that if the government
pays lower interest rates, its car
rying charges on the public debt
will be lower. From this point
the argument goes on TO say that
either businessmen will take adj
vantage of cheap money to borrow
and expand, or else the govern
ment can take them over and do
the expanding with the aid of its
vast borrowing.
LEAN TO COLLECTIvISM
The theoretical argument for
"the easy-money policy" is that
interest is unnecessary, that re-
ducing il will discourage private
saving and investment. and that
this will do away with the capital
iStic system. Those economists
who favor the easy-money policy
lean toward collectivism.
1t is thus important TO note that
the last annual report of the Fed
eral Reserve System proposes a
projection of the easy-money pol
icy into the postwar period. II
says: Prospects are that condi-
tons in the postwar period will
favor the continuance of low long
term interest rates" 1t proposes
10 keep interest rates abnormally
low. In vague general way, its
argument is that this will achieve
full utilization of the nations re-
sources. More specifically it makes
the same points stated above:
Cheap money will facilitate
refunding public debt and safe
guard the price of government
bonds.
Cheap money will encourage
business expansion through larger
capital OUTLAWS in old and new
enterprises.
POLICY UNSOUND
hold that this policy, and the
theory back Of II, are unsound and
destructive of democracy. They
should be rejected as so much
poison. My reasons are as follows:
The easy-money policy encour-
ages the government to borrow,
resulting in bigger debts and big
ger total carrying charges than
otherwise.
The eaSy-money policy increases
costs to us citizens through higher
insurance premiums and higher
investment prices. eve get lower
yields on government bonds and
other securitiesD
The easy-money policy does not
stimulate business or give full en-
ployment. look at the continued
abnormal unemployment prior to
the draft Actually it retards
saving and restricts investment.
Normal individuals won't invest
as much when interest and divi-
dends are low as when they are
high. This hurts the heavy capt.
tal-goods industries and causes
great unemployment.
BUSINESS HAMSTRUNG
The result is that private enter
prise is hamstrungr Then the bu-
reaucrat says: IF businessmen
won't. the government will" He
proceeds to shove the interest rate
down notch in order to get more
cheaply the funds with which to
take business for a ride.
NIL