Evening star., 1960-07-31

JllC CcUcI al ucUI, eAptClS IIl6
of economic life if Senator Ke
"AS the first step in Spl
Democratic platform promises.
"a Democratic President will
put an end to the present high
interest, tight money policy"
Avoids Partisanship
Mr.. Baird tries to avoid in
volvement in partisan cam
paigning, but he has told asso-
ciates he doubts the Democrats
could deliver on this pledge or
would want to if they assumed
responsibility for monetary and
debt policies.
There is no sound way for
the Government to lower in
terest rates deliberately, Mr..
Baird maintains. He believes
the next administration -
whether Republican or Demo-
cratic-will encounter the same
basic economic problems as the
Eisenhower administration and
will reach the same conclusion:
The only way to promote
sustainable economic growth
without violent swings between
imitation and recession is to
pursue prudent-in effect con-
servative-policies; the only
alternative is debasement of
the currency with dire conse-
quences at home and abroad.
Democratic leaders contend
the Eisenhower administration
has caused shortages of money
and credit, with unnecessarily
high interest rates, through
tight money" policies Of the
Federal Reserve Board and the
Treasury. They charge these
policies have stifled economic
growth, caused recessionS and
raising the cost of borrowing
for consumers, businessmen
and Government without
stopping imitation.
Mr.. Baird and other high
officials maintain that they
favor low, not high. interest
rates. But they insist that it
would be dangerous for the
Government to try to force in
terest rates down through arti-
fetal manipulation.
Rate Definition
Interest rates are the price Of
borrowed money, according to
Mr.. Baird, and like prices of
goods they rise and fall in re-
action to supply and demand.
When the economy is prosper
Gus and active, the demand for
borrowed money increases as
consumers buy more and busi-
nesSmen expand.
Mr.. Baird sees the many pro-
posals for lowering interest
rates in prosperous times as
nothing more than devices to
increase the supply of money.
If the Government SuccumoS
to pressure and increases the
money supply too much, he
warns, imitation inevitably will
ensue. While imitation may
temporarily lower interest
rates, lenders before long will
demand higher interest rates
to protect themselves against
the dollars loss of value.
One of the favorite proposals
Of some Democrats is a policy
calling for the Federal Reserve
to increase purchases of the
Treasury's bonds and notes. The
idea is that the Federal Re-
serve thus would help keep in
terest rates from rising.
But Mr.. Baird contends that
such use of the Federal Reserve
to support Treasury borrowing
would undermine a cardinal
principle of sound financial
policy-the Federal Reserves
independence of political domi-
nation. If the Treasury can
count on the Federal Reserve to
lend the Government money, ne
has warned, there will be too
much temptation to spend free
ly. This procedure would be
little different from running
Bureau Of Engraving printing
presses full speed to pay for
Governmen programs, he
maintains.
Congress Refusal
Refusal by Congress to re-
move the ceiling on Treasury
interest rates shows that crit
les of tight money" are unwill-
ing to let supply and demand
set the price of borrowed
money, Mr.. Baird has said. The
Treasury is forbidden by law to
pay more than Az per cent in
<erest on bonds maturing in
five years or more. The Eisen-