PRESIDENT'S AIM.

Auckland Star, Volume LXIV, Issue 283, 30 November 1933, Page 10

PRESIDENT'S AIM.

"COMMODITY DOLLAR." STABLE PURCHASING POWER. " GOOD-3YE TO GOLD STANDARD." "The world is, little by little, saying good-bye to the old-fashioned treacherous gold standard. Henceforth gold will be our servant, hot our master,", declared Professor Irving Fisher, of Yale University, one of . the leading* American economists, in an authoritative interpretation of President Roosevelt's gold policy/ published in the London "Evening [Standard" on October 25. He said:—The obscurity which has seemed, to i surround President Roosevelt's gold policy in the minds of many, especially in Europe, is, I think, due to a failure to follow his statements and to a confusion between two meanings of the phrase "stabilising the dollar."To President Roosevelt, and to all economists, the important sort of stability is stability itr the purchasing power of tlie dollar within America. This internal purchasing power of the dollar is measured by the size of a market basket, so to speak, or diminutive assortment, of representative commodities in representative proportions —wheat, cotton, lumber, and so on, worth as a whole one dollar, reckoning at cur-rent-wholesale .prices of the constituent commodities. To stabilise the dollar, in this sense, is, of course, the same thing as to stabilise the general level of commodity prices, though this does not imply fixing any individual- price.

At What Level? But, before the price level is stabilised, we must decide at what level it shall be stabilised. The present price level is too low; that is, the present purchasing power of the dollar is too high. If we were to stabilise at the present level, every debtor who contracted his debt before 1930, as most existing debtors did, would have to pay nearly 40 per cent more real value than he bargained for or expected. The farmer, for instance, would have to sell more wheat to meet his mortgage, the creditors would likewise get 40 per cent .more than they bargained for—that is, if they got paid. As a matter of fact, debts cannot, in general, be paid at the present price level, and it is unjust to debtors to impose such a price level on them. We must still raise the price level nearly 40 per cent in order to do them justice. We must not raise it further, for that would work injustice to creditors and would be inflation.

President Roosevelt has publicly and distinctly stated this principle of bringing back the price level to that point at which, on the average, existing debts were contracted. . That restoration has been called reflation, to distinguish it from excessive inflation or passing beyond this level of "the greatest good to the greatest number." It will make profits possible again, and so reabsorb the unemployed. This reflation, or restoration to normal of the general level of prices, constitutes the first half of President Roosevelt's monetary policy, including liis gold policy. The second half of that .policy is j stabilising that price level when at last it is reached. "Only About Half-way." Thus far reflation has proceeded only about half-way toward the goal set. When Mr. Roosevelt became President last March, American wholesale prices were, on the average, 55 per cent of the prices of 1 {>26, according to my weekly index number published in tiie newspapers. The index has now risen from 55 to 72. One means of accomplishing this reflation was going off the gold standard. Prices started to rise immediately, just as they did in England when she went off the gold standard in September, 1931, an! just as always happens, or tends to happen, in such circumstances. As long as a country is on the gold standard the value of its monetary unit must be equal to the value of the gold in that unit. ( If Mr. Roosevelt should fix the gold content of the dollar to-day to correspond to the existing rate of exchange between the dollar and the franc or other gold unit, it would tend to stop all possibility of further'reflation. That is why he says it would be putting the cart before the horse.

Such fixation of the content of the gold dollar is what most people in Europe seem to mean when they talk of stabilising the dollar. Such fixation would be a convenience in foreign trade, but foreign trade is of little consequence compared with domestic trade. And, even for foreign trade, such superficial stabilisation is of less importance in the long run than stabilisation relatively to commodities in general.

If our foreign friends will be patient a few months more they will, I believe, find that "'dent Roosevelt's sort of stabilisation will become a reality, and will be a means of revivifying industry and trade throughciut the world. Incidentally, it will make it easier to pay America the war debts due from European nations.

To fix the gold content of the dollar [ is the same thing as to fix the price of I gold. Until we went off the gold standard the gold dollar was about a twentieth of an ounce, so that the price of gold was necessarily about 20 dollars an ounce. Now the price of gold is over 30 dollars an ounce. When the price level is reached at which President Roosevelt is aiming the price of gold will be correspondingly higher, along with the 'higher prices in general, and the gold content of the gold dollar will be less. "Gold Will Be Our Servant." Meantime, to prevent undue fluctuations in the price of gold, President Roosevelt has announced his authorisation for a gold market. Probably the price set by the United States Government on gold from time to time will lead the way to the rise in American commodity prices, the. "reflation" part of the programme.

After the reflation is complete, and stabilisation is in order, the price of gold need not vary so greatly. Though even then it should not be stereotyped as in times past, lest again a "scramble for gold" shall raise "its value by lowering the price level of commodities. President Roosevelt is, as he says, moving toward a "managed currency," a commodity dollar, or a market basket dollar. It may be linked with gold, but not at ah irrevocable price of gold. The important point is that we can, by proper management, make the price level what we will, provided we are not chained too .highly to gold. President Roosevelt has raised the price level, will raise it more, and then stabilise it. In short, President Roosevelt's gold policy is simply so to manage gold as, with other measures, to reflate the price level to normal, and then stabilise it tHere. i