Evening star., 1951-02-07
Our Threatened American Dollar

Wi l"C0SCuCu <AH5Ctt(QU 6OV0s
It is notwithstanding unfortunate
that the really important facts of the difference
of opinion concerning our Federal monetary
policy are in danger Of being submerged and lost
In clash of personalities.
The personality aspect is not very important.
The economic future of this country does not
depend upon what James X. Vardaman thinks
of Mariner Eccles, whatsNr Eccles may think
of Secretary of the Treasury Snyder, or upon
what any or all of them think about the Presi-
dent. A great deal does depend, however, on
whether Mr. Eccles or Mr.. Snyder is right in this
matter and whether the correct view prevails
The one thing that is clearly at stake, and
which is of much greater Importance to the
country than the status of any of the individuals
involved, is the future value of the American
dollar. No one has to be told that the purchas-
ing power of the dollar-its real measure Of
value-is shrinking. If this shrinkage continues
1t is only question of time until public conf
dence in the dollar disappears and the public
credit will be destroyed If that time comes
our capitalist society is done for, and we will
move, whether we like it or not, into some form
of tightly regimented, socialstic economy
This is what the argument between Mr.
Eccles (his views are shared by many others
and Mr.. Snyder is all about. In many respects
they are in agreement. For instance, both OF
them support an increase in taxes sufficient to
balance the budget, reduction of nonessential
expenditures ALLEGATION of scarce essential ma
terials selective credit controls etc. They differ
fundamentally however, in the matter of Fed
eral monetary policy, and as of this time the
President stands squarely behind his Secretary
of the Treasury
In other words Mr. Ecces others in the
Federal Reserve System and those on the outside
who agree with him are losing the argument.
T1,oryy ofo 10, ,-.sc
event no real harm is being done But if they
are right then a great deal Of harm is being
done, and in the end the result may be disastrous.
For this difference of opinion-if the Eccles view
is correct-is not something that can be per-
mitted to drift along and find its own solution.
The issue is one that has to be decided and
settled If our system is to survive.
At this stage of the matter the important
thing is that the arguments which Mr. Eccles
and others advance should be understood and
receive full consideration.
Their basic thesis is that under existing
conditions the Federal Reserve should dscon-
tinue' its open market support of Government
securities. This, of course, has nothing to do
with the Series E bonds and similar issues They
are not in the picture. What is concerned is
the great bulk of Government securities, aggre-
eating perhaps 5000 billion. Mr.. Snyder thinks
the market price of these securities should be
supported to avoid rise in interest on the
Government debt. Mr.. Eccles, generally speak
ing would discontinue Federal Reserve support
and let these securities find their own level in
the market. If this increased the Governments
interest bill Che thinks the increase would be
far less than does Mr.. Snyder he would accept
that as being by far the lesser of two evils And
his argument runs along these lines:
During the past seven months the most i'm
portant inf1ationary factor In our economy has
been the Federal monetary policy AS result
primarily of Federal Reserve purchases to sup
port the market price of Government issues
during this period there has been an increase of
approximately $40 billion in bank loans since
May 81. This means that some $40 billion of
additional creditor new money, for that in
effect, is what 1t is-has been pumped into our
economy by the Government while that same
Government, with its other hand, has been max
ing gestures toward controlling imitation This
is not the whole story but 1t is part of what Mr.
Eccles had in mind when he told Senate COM
mittee that the Treasury policy of maintaining
fixed policy of interest rates converts the en-
tire banking system, through the action of the
Federal Reserve, into IAN engine of infiation.'
MIR. Snyder does not agree with this view,
and he seems to be supported not only by his
Treasury Department advisers but by large
and influential number of bankers. It is
iiitCICScliiS, IioWeVcI, tIldG group OF ecOnO-
mists from the University of Chicago have ex-
pressed the opinion that "the price rise of the
last six months could almost certainly have been
largely or wholly avoided =. If the Federal
Reserve System had kept its holdings of Gov
ernment securities unchanged instead of adding
to them by $3.5 billion"
To revert back to the original premise Ii
Mr.. Eccles is right we are heading and hurrying
toward disaster. Price controls, higher taxes,
balanced budgets-such things as these will not
save us from imitation unless imitation is curbed
at its source in the banking system. All of the
parties to this debate most certainly want to
check imitation and preserve the value of the
dollar. But If Mr.. Eccles is right the basic
governmental policy, its monetary policy, is hav-
ing precisely the opposite effect That conten-
ton, considering the sources from which it
comes, is too serious to be brushed aside In The
Stars opinion, those responsible for monetary
policy, Congress, and especially the President,
should forget personalities, put aside precon-
ceived notions and take another long look at this
whole matter.