INFLATION CRY.

Auckland Star, Volume LXIV, Issue 261, 4 November 1933, Page 9

INFLATION CRY.

AMERICAN FARMERS. N.R.A. NOT DOING ENOUGH. REVERSE ONLY TEMPORARY? (From Our Own Correspondent.) SAN FRANCISCO, October 11.

iTlic national recovery question in the United States is being considerably befogged by the widespread talk of inflation, and it is being asked what lies behind this renewed cry for inflation of of the nation's currency, which, its sponsors claim, may result in the "march" of a million distressed farmers and workers on Washington to demand i action, and may become one of the biggest issues in the next Congress. I The answer is simply that the inflaI tionists believe the N.R.A. and other fea- ! tures of the , Roosevelt recovery proI gramme are failing to accomplish their aims; that Roosevelt now must use the power to inflate the currency which the "New Deal Congress" gave him, like a sheathed sword, to be used if and when he thought necessary, as. a last resource. The demand for inflation arises principally from the debt-burdened farm belt of the South and the mid-West, where farmers insist they must have cheaper dollars to pay off' their debts, or they ! will be ruined* These inflationists would have the Government start its printing presses whirring and print billions of new money. This money wotild be used by the Government to pay salaries of Federal employees, Government expenses, and to reduce the Federal debt. Thereby it would get into circulation, but unlike other money, which is backed by gold, this new fiat money would have nothing behind it but the good name and credit of Uncle Sam. ,

Seen as Business Tonic. This inflation, its sponsors claim, would act as an immediate and powerful stimulant to business. By cheapening the dollar it automatically would raise prices, and business thrives on a rising market. Moreover, they say, it would rescue millions now hopelessly morassed in debt, enabling them to pay out with these cheaper dollars. It is pointed out that 90 per cent of the business of the United States is conducted by credit, not cash. But the inflationists are certain that the expansion of cash would have psychologically a similar effect on credit. '

So far at least President Roosevelt has turned "thumbs down" on inflation. He has not deemed it necessary to invoke, except in a limited way, any of the three methods for currency inflation that Congress gave him to use in his discretion: First, authority to require the Federal Reserve Board to buy 3,000.000.000 dollars of obligations of the Government in so-called open market operations. This plan takes money invested in Government securities, and restores it to business. Since May the board has bought 307,000,000 dollars. Second, the President can issue 3.000,000,000 dollars in new money, backed not by gold, but merely by the Government's credit, and use this money to buy back and retire Government bonds." He has taken no action. Third, the President can cheapen the dollar by reducing its value in gold by as much as 50 per cent, and he also can provide for the unlimited coinage of silver at any designated ratio; but he has taken no action.

Either of the last two methods would be inflation. The value of the dollar would be reduced greatly; dollars would become more plentiful, but they would buy less. However, these cheap new dollars could be used to pay off old debts, which naturally is not fair to the long-suffering creditors. The Great Recqyery. In view of the inflationists' v claim that the Roosevelt recovery programme has proved inadequate, it is interesting to review what has happened, and here, is the story in ABC form: When the historic 100-day "New Deal Congress" adjourned in June it had, in addition to the regular annual Federal budget of 4,500,000,000 dollars, put at Roose velt's command an "extraordinary budget" of 10,954,500,000, to be used by him to fight the depression and restore the nation to its economic feet. This 10 billion dollars approximates the principal of the war debts owed Uncle Sam by Europe. Of this amount, 4,904,500,000 dollars —nearly half—was in the form of direct appropriations and authorisations. The . largest item was 3,300.000,000 dollars for the Government's vast public works programme; the next biggest was 500,000,000 dollars to feed the hungry unemployed until jobs could be created for them, through the N.R.A. and otherwise. Various other items were designed to stimulate employment and increase buying power. The rest of the "extraordinary budget" covered 0,050,000,000 dollars in the form of authority for bond issues to promote economic rehabilitation. The vast recovery programme got under way.

Spurred by the prospect of rising prices and better times, and also by the veiled threat of currency inflation, the swiftest business recovery in the nation's history began. Thousands trooped back to work in mills and factories, the 1 farmer suddenly found prices of wheat, corn and pigs travelling swiftly upward. Recovery soared. From a low point of 45.4 per cent below normal in March, 1933, industrial production rose to 39 per cent below normal in April, 29.9 per cent below in May, 17.2 per cent in June, and only 9.1 per cent below in July.

Turn of the Tide. With July came the turn of the tide. In August industrial production dropped back to 10.3 below normal, and, according to estimates, the September figure will show a further drop. The farmer, who had been carried to a brief period of comparative prosperity by the soaring prices of his crops, soon found himself in almost as bad a fix as before. His prices started back down, but prices of things the farmer buys kept on rising. In August this disparity was greater than it had been in July—but still it is less than it was a year ago. Meanwhile farm prices lag while retail prices con tinue upward. Especially is "the cotton farmer suffering in this respect.

While pro-inflationists, particularly debt-burdened farmers, see in these developments the inadequacy of the Roosevelt recovery programme, many others disagree. They declare that a temporary recession i<? to be-expected, in view of the phenomenal gains made before July. Moreover, such variation may be mostly seasonal, and witli the coming of the autumnal market busine • is expected to spurt again. To inflate now—or pin hopes to the Blue Eagle and farm rehabilitation? You can hear it argued either way. i